Carl’s Jr. Plans New Tactic in Burger Wars : Will Test College Campus Outlets, Downtown ‘Express Stores’
In an effort to increase its share of the California market, Carl Karcher Enterprises said Wednesday that it plans to test downsized “express store” versions of its Carl’s Jr. restaurants in urban areas, including downtown Los Angeles.
The company also plans to open some prototype units on college campuses in the Southland, President Donald Karcher said at the company’s annual meeting in Anaheim.
Despite these experiments, the once fast-growing restaurant chain will slash previous growth plans for fiscal 1987 by 50% and will not consider expanding beyond California, Arizona and Texas for the next 18 to 24 months.
These revised growth plans come on the heels of an announced 9.4% increase in net income for the first quarter of fiscal 1987, to $887,000 from $811,000.
Despite the first profit increase in a year and a half, the Anaheim-based owner and franchiser of 460 Carl’s Jr. restaurants is still scrambling to hang on to its market share.
Losses Offset by Sales of Old Units
In an interview after the meeting, Donald Karcher said the company has lost money on operations for the past six months. He and other company officials refused to reveal the size of the operating loss, which was offset by profits from the sale of some outdated restaurants.
But Donald Karcher projected operating profits for the second quarter, despite an ongoing sales slump. The company posted a 6.6% drop in first-quarter revenues for the period ended May 19--to $90.5 million from $96.9 million.
“We are human and subject to mistakes,” said Carl Karcher, chairman and company founder. “But when you have adversity, it develops character.”
He said that one mistake the company won’t make is to tinker with its familiar smiling star logo. Despite recent published reports, the company has no plans to redesign the logo, Carl Karcher told several angry shareholders.
“We have no intention of taking the smile off the star,” he said in a pre-meeting interview. “If anything, we plan to make the smile bigger” with improved profits.
80 Older Restaurants to be Remodeled
To help do that, Karcher Enterprises has trimmed its costly expansion plans and will add only 25 new units in fiscal 1987. But nearly $6 million will be spent remodeling 80 of its older restaurants, Donald Karcher said.
With growth limited mostly to California, the company plans to test its appeal in two market niches that it has avoided--urban areas and universities.
Three of the Carl’s Jr. express restaurants--take-out shops with limited menus--will be test-marketed in and around downtown Los Angeles later this year, Donald Karcher said.
The move is an attempt to capture the lush urban market without paying exorbitant prices for large pieces of downtown real estate. The express stores will cost about $100,000 to build instead of the $275,000 that the company spends on typical new restaurants, he said.
The company has also decided to crack the college market and is looking at on-campus sites for restaurants at USC, Cal State Fullerton and Cal State Long Beach, where it would be competing with Saga Corp., a huge food-service company that sells cafeteria-style food at college campuses nationwide.
Self-Service Food
In another move to pare costs, the company is test-marketing seven self-service-style restaurants in Bakersfield, where customers pour their own drinks and make their own salads at enlarged salad bars, Donald Karcher said.
Beside seeking new markets, the company also intends to introduce several new products this year after a thinning of its higher-priced menu items last year. Among the proposed new items are chicken club sandwiches and improved French fries, said Bob Wisely, the company’s marketing director. The company also is studying a return to the dinner market with budget entrees that would feature stuffed baked potatoes, salads and vegetables, he said.
Competition From Gas Stations
Some of these changes are the result of unexpected new pressures from the Atlantic Richfield Co.-affiliated am-pm Mini Marts, which recently began selling budget-priced hamburgers--two for 99 cents--at most Southland outlets.
“It’s hard to imagine a service station serving good food,” said Donald Karcher. “First you fill your car, and then you fill your mouth.”
In yet another marketing move, the company plans to launch a major promotional campaign next month to tie in with its 45th anniversary, Carl Karcher said in the pre-meeting interview. Several commercials are scheduled to be filmed today for the contest, which will feature food giveaways and cash prizes, Karcher said.
