The future of Krystal will have fewer seats.
The burger chain, based in an Atlanta suburb, recently broke ground on a new company-owned restaurant in Alabama that, when finished, will have a drive-thru and walk-up access but no seats—making it the latest in a growing trend of seatless fast-food restaurants.
It’s one of a pair of smaller new prototypes that CEO Tom Stager hopes will jumpstart the chain’s growth in part by dramatically lowering buildout costs. He estimates that buildout costs on the new design will be at least 25% cheaper, and in this market cheaper is a good thing.
“The cost is huge,” Stager said in an interview. “When you’re a new franchisee or even an existing franchisee, especially in this market, cost is important. If you can build something 25% to 30% less expensive, that’s intriguing.”
It’s not just buildout, he said. With no lobby and only takeout sales through a counter and a drive-thru, the seatless restaurant will be 40% smaller. The one with seats will be 1,700 square feet, smaller than the 2,000-square-foot traditional restaurant.
Either way, Stager said, there will be fewer or no seats to clean and less walking for workers, making the new prototypes more efficient to operate. “You’re going to have efficiency when it comes to labor,” he said. “You don’t have to maintain a drive-thru.”
From a franchisee’s standpoint, he said, “that’s intriguing.”
Company executives hope the prototype can help fuel unit growth and build on what they say was their strongest year in a long time in 2021.
Krystal features 290 locations throughout the Southeast. The chain has been either stagnant or in decline for the better part of two decades. It has 121 fewer locations than it had 20 years ago, for instance, according to data from Restaurant Business sister company Technomic.
Krystal’s unit volumes have been stagnant, too. The chain’s average unit volumes are 7% lower than they were a decade ago, and 29% lower than they should be if they simply kept pace with inflation.
But the company appeared to turn something of a corner last year. Unit volumes rose 9.5% in 2021, though at 10 fewer restaurants than the year before. And Stager said that sales have continued to grow thus far in 2022 and he suggested that economic and inflationary concerns have not hampered those results.
One of the problems, Stager suggested, was leadership. After Fortress bought Krystal in 2020, top executives met with the chain’s franchisees. They mentioned that the brand had five or six CEOs in the past seven to eight years. “’What will you guys do differently?’” Stager quoted them as saying.
The company then created what it calls the “Krystal Council,” a group of corporate executives and franchisees that make decisions “as a brand.”
Krystal has taken some other notable steps. It has been an unlikely leader in the use of artificial intelligence in the drive-thru, for instance. Earlier this year, it named the rapper 2 Chainz its head of creative marketing.
That deal is paying off, Stager said. 2 Chainz’s team has helped with the design of the prototype and menu and is “involved daily” in the concept.
“He’s attracting people to the brand,” Stager said. “You can’t put a price on that. He reaches people we could never reach.”
Krystal also did something that it hasn’t done in a long time: Add a new franchisee. The burger chain signed a five-unit deal in New Jersey with former National Football League player Victor Cruz. He was the chain’s first new franchisee in 15 years.
Stager said the company is talking with others. “We have a lot of folks that are extremely interested,” he said. “We’re trying to grow this brand.”
The goal, he said, is to get to 500 locations. That would represent a dramatic reversal for the chain.
Stager thus believes a smaller, cheaper prototype will make the model more economically feasible, which could bring in a new generation of operators that get the brand into more markets.
To be sure, Krystal is hardly the only chain targeting growth with smaller prototypes. Chains such as Del Taco, Taco Bell and Jimmy John’s have started testing and developing drive-thru-only locations as more fast-food business has shifted to takeout and delivery. Such ideas are banking on that remaining at a high level.
Krystal’s restaurants, Stager said, have settled in at a higher level than pre-pandemic. “Pre-COVID we did 75% in the drive-thru,” he said. “When COVID hit it was 96%. We’ve settled down to the mid to upper 80s.”
The company started working on the new prototype almost immediately after the sale. It is building three new restaurants in the new prototype this year, one in Centerpoint, Ala., along with a couple of locations in Atlanta. It then hopes the numbers work out so both existing and new franchisees start to grow.