35 Laid Off as Karcher Cuts Costs : New Restructuring Also Due in Battle Against Earnings Dip
Trying desperately to regain its lost footing as a fast-food industry force, Carl Karcher Enterprises initiated its second corporate restructuring in 10 months and laid off 35 of its 500 corporate employees this week, including some in supervisory positions.
As part of the restructuring, the Anaheim company will add eight new corporate positions, according to Paul Mitchell, vice president of corporate affairs. Mitchell said efforts will be made to fill the new jobs from among those laid off.
The company, which operates more than 400 Carl’s Jr. restaurants in five states, is expected to announce other belt-tightening measures within the next few months. Those could include scrapping some new menu items that have produced disappointing sales since their introduction last year. No additional layoffs are planned, Mitchell said.
The measures reflect the ongoing Karcher struggle with reduced earnings that has led industry observers to predict the company is on the brink of its worst year since it went public in 1981. The latest moves, implemented Monday, added to analysts’ concerns about the company.
Stock Closes at $15
Karcher stock closed at $15 a share Wednesday in over-the-counter trading; its peak was $45 a share in October, 1983. “It’s one of the most significant drops among the nation’s large, established restaurant companies,” said Ward P. Lindenmayer, analyst at Rowe & Pitman Inc., a San Francisco brokerage.
The company’s recent earnings have suffered from costly new products and programs. Its third-quarter net income of $1.4 million was down nearly 50% from the same 1983 quarter. Industry analysts project that Karcher also will post disappointing fourth-quarter results. Those figures, for the 1985 fiscal year ending Jan. 25, are scheduled to be reported in April, a company spokesman said.
Employees learned of the layoffs Monday. First, Karcher’s divisional supervisors were called into conference and informed; other employees learned later that day. Supervisors who were laid off got two weeks’ pay; other employees got two weeks’ notice.
Of the 35 laid off, more than half were supervisors, although no senior executives lost jobs.
The decision to lay off the workers was reached last week by the company’s executive committee of Carl Karcher, chairman and chief executive; Don Karcher, president and chief operating officer, and three senior group vice presidents, Mitchell said.
‘Key Is How You Supervise’
When Naugle’s Inc., another fast-food chain, initiated cutbacks in the face of declining earnings, it chose another route. Harold Butler, chief executive of the Fullerton-based company, said he tried to avoid firing supervisors. “The key to the fast-food business is how you supervise,” he said. “Those are the (positions) you try to increase, not decrease,” he said.
Beside layoffs, Karcher has also decided to restructure some key divisions, including shuffling among the company’s middle managers. Jobs and duties in its product development and marketing departments will be trimmed, in conjunction with a decision made several months ago to clamp a lid on new product introductions.
This week’s action is the second personnel shake-up in less than a year. Last April, when it implemented a franchise plan, the company shifted several of its top managers.
“This is not a reflection of growth, because we are going to continue to grow,” Mitchell said, “but we just plain don’t need those 35 functions that we’ve eliminated.”
The intended job additions also reflect Karcher’s cost-savings strategy, Mitchell said. Some of the new jobs will be in a travel department it is creating to centralize tasks previously handled by each division.
But overall, a lot more is expected to be eliminated than added at Carl Karcher this year. Its expanded menu of steak, fish and chicken dinners, along with its recently introduced one-third-pound burger, is under scrutiny by a newly created menu-evaluation committee, Mitchell said.
Sales of the third-pound burger, which was introduced three months ago, have lagged despite a $2-million advertising campaign. Analysts contend the $2.09 price tag on the big burger has led to consumer resistance.
“The company placed a risky bet that it could upgrade the public perception of what fast food is all about,” said Lindenmayer. “They’re finding out that it is not do-able.”
Karcher also is discovering that timing is crucial to expansion. At the time when it announced bold plans for its menu and for franchising, the fast-food industry already was in a general slowdown. Then the situation worsened for Karcher when the Olympics failed to draw anticipated throngs to Southern California, home to most of Karcher’s restaurants.
“They overestimated response and underestimated costs,” analyst Lindenmayer said.
