Armed with new funds, Checkers looks to build on a strong 2020

The drive-thru burger chain has a new loyalty program, new franchisees and is testing a new kitchen design.
Photo courtesy of Checkers

Few chains had as good a year as Checkers. The drive-thru chain, which together with its Rally’s twin concept operates more than 800 locations, saw sales surge during the pandemic, taking the company from one that was facing a restructuring to one with strong sales, a cash infusion from its private-equity sponsor and a bunch of new franchisees.

The challenges is keeping that momentum, but the Tampa-based chain has a plan that includes a new prototype, a kitchen that will make life easier on employees and a new loyalty program that debuted last week.

“We’ve had one hell of a year,” CEO Frances Allen said at the ICR Conference on Wednesday. “We are very excited about where we are on our journey.”

Checkers has been one of the more fascinating stories of the pandemic. The company struggled going into this year—U.S. sales declined an average of 0.7% a year between 2016 and 2019, according to data from Restaurant Business sister company Technomic.

That’s entirely due to a decline in unit volumes, which declined 9% over that period.

In her presentation, Allen largely laid the blame at the feet of competitors, arguing that price competition was hard on Checkers and Rally’s. She said that the chain “struggled to compete against the extreme value offered by the larger QSR chains” even though it “built its playbook on value.”

The company began making some changes late in 2019 and then brought in Allen, the former Jack in the Box and Boston Market executive, in February of last year. The pandemic hit one month later, and the chain’s sales were hit hard. First-quarter same-store sales declined 3.8% in the first three months of the year.

Things changed in a hurry in April. Same-store sales in the subsequent three quarters increased 8.9%, 13.9% and 11.3%, respectively.

As it turned out, a customer base that was not dining inside of restaurants and were lining up at drive-thrus was right in the wheelhouse of a drive-thru chain such as Checkers. “The lockdown, stimulus checks and the shift to contactless ordering created significant tailwinds for the whole industry,” Allen said. “We were ideally positioned to take advantage.”

To highlight that sort of demand, Allen played a video showing the line at a newly opened Checkers in Baton Rouge, La. Cars in the location’s double drive-thru were lined up into the street and into the parking lot of the abandoned warehouse next door. The line snaked down the lot and then back again to the lot’s entrance and back into the street.

While the aforementioned tailwinds helped Checkers generate those sales, Allen argues that the chain was able to take some steps to “amplify those advantages.” She noted that the chain outperformed the fast-food sector by 610 basis points in 2020. “Our recovery was much bigger and sustained throughout the year,” she said.

That has put the chain on a new footing. Checkers restructures its finances last year while private-equity owner Oak Hill Capital injected $20 million in cash into the chain.

Meanwhile, franchisees have been lining up to invest in the company. Checkers had 160 franchisees going into 2020. Last year it approved 40 more. It added 70 locations to its development pipeline, and operators doubled their earnings before interest, taxes, depreciation and amortization.

Checkers shifted more of its ad dollars to digital, including third-party delivery. The chain began working with more delivery providers and added order-ahead functionality. It also converted one lane in some of its double drive-thrus to an ecommerce lane.

It refreshed its menu and also shifted its value strategy, adding small value bundles such as 2-for-$10 or 2-for-$6 combo meals.

Checkers also sees considerable possibilities in the kitchen. The company is testing new kitchen models and new kitchen equipment. The design of the kitchen alone could help the company’s operations—Allen noted that kitchen workers as a team walk 1.5 miles more than they should with the current kitchen design.

The current equipment is also “outdated” and “hard to learn.” “We started in 1985,” Allen said, “some of our kitchen equipment probably hasn’t been updated since then.”

The chain operates 836 locations and Allen said it has a lot of “white space” in its existing markets as it is. And Allen said the reception generated by new locations gives it confidence in its ability to open those locations.

It’s uncertain how long the company will have the tailwind it enjoyed in 2020. But Allen believes it now has a plan in place to maintain that momentum. “All-in-all 2020 was a great year,” she said. “But we believe even better years are ahead.”

UPDATE: This story has been updated to correct the location of Checkers' headquarters. 

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