Nov 15, 2021 | Report Announcements

Hardee’s brand attributes as a regional chain with a Southeast & Midwest orientation include: made-from-scratch breakfast biscuits; made-to-order charbroiled burgers (with over-sized patties & Black Angus options); hand-breaded chicken sandwiches & tenders; charbroiled chicken line; hand-scooped ice cream shakes; and table service. Hardee’s is unique in that its high-margin breakfast business generates a material sales mix and efforts to extend breakfast hours to 2PM should increase brand appeal. The chain’s comps turned positive/break-even in 2020 after 4 consecutive years of declines as the system benefits from a significant increase in drive-thru demand post-covid. Building on this momentum, YTD comps through the first 3 quarters of 2021 were positive mid-single-digits as the brand’s menu and marketing improvements gain traction while the brand continues to benefit from its QSR DT format and a return of breakfast. Also, a significant innovation ramp-up beginning in 2020 helps increase trial/brand reach while efforts to compensate for a relatively small scale/share of voice include an increased marketing allocation towards cost effective digital-first and social-friendly content which targets a younger demo. Notably, the chain’s historical sales pressure reflected: a struggle around a premium lunch/dinner positioning at a time when QSR competitors had been emphasizing value; relatively slow digital progress; a lack of a consistent, effective marketing message around its very important breakfast daypart; and past efforts to migrate guests to higher priced LTOs. Hardee’s is reluctant to compete with the larger, national players around value/discounting as the brand lacks sufficient share of voice to promote both quality and value sufficiently to overcome trade-down. Also, while co-branding with sister brand Carl’s Jr. (West Coast orientation) helps provide national scale, the demos for these 2 brands are notably different and Hardee’s large breakfast mix (vs. Carl’s) represents a co-marketing challenge. Significant AUV underperformance, high labor costs (reflecting operational complexities) and elevated ad spend (to compensate for relatively small scale) translates into EBITDAR margin under-performance. In conclusion, while Hardee’s is beginning to improve relevancy around its menu and marketing, the need to strengthen its value positioning may still be required to drive the top and bottom lines.

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