Carl’s Jr. Executive Summary
Carl’s Jr. is a QSR burger chain with a significant regional West Coast orientation spanning from Colorado to California. Brand attributes include: burgers with double patties & premium Thickburger Angus platform; hand-breaded chicken sandwiches & tenders; charbroiling for burgers & certain chicken sandwiches; biscuit breakfast sandwiches; and milkshakes made with hand-scooped ice cream. A recently announced $500MM brand upgrade (across Carl’s & sister brand Hardee’s) includes: a remodel program incorporating new restaurant design elements; tweaks to its “Happy Star” logo; and new in-store signage, uniforms & food packaging. Carl’s value equation = better burger positioning at QSR prices which compliments its very compelling $2.99 Charbroiled Double Deals. The chain’s significant innovation is designed to drive trial/brand reach as Carl’s seeks to find new ways to “Feed Your Happy” by satisfying their fans’ ultimate cravings. The system is catching-up with a new digital order platform which rolled-out in 2021 and its new loyalty program should also help with the brand’s digital presence. Healthy comps over the last couple of years reflects traction with the brand’s menu and marketing improvements and the chain’s unit-level EBITDAR margin outperformance reflects COGs strength boosted by Carl’s aversion to discounting. All-the-same, high rent and labor costs on the West Coast make it difficult for the brand to sustain price value as a premium positioned brand in an increasingly price sensitive market. While the brand would like more recognition for its larger patty size, it is not clear that customers will pay-up for bigger patties. Also, the brand’s smaller scale and share of voice necessitates elevated ad spend as a % of sales and makes it difficult to support development outside of core markets. Net unit count declines over the last 5 years also reflect a low sales-to-investment ratio. In conclusion, while Carl’s Jr. is building upon its positioning as a purveyor of tasty burgers, the chain remains challenged to meet the growing demand for value in a tough economic environment given elevated operating costs associated with its West Coast orientation.