CKE Restaurants Inc. to acquire Hardee's, roll out Carl's Jr. brand

Nation's Restaurant News, May 5, 1997 by Mark; Carlino Hamstra, Bill

Mark Hamstra and Bill Carlino

ANAHEIM, Calif. - In a move that could propel Carl's Jr. from being a strong regional player to a national powerhouse, the chain's parent, CKE Restaurants Inc., based here, has agreed to acquire the struggling 3,152-unit Hardee's chain from Montreal-based Imasco Ltd.

The acquisition, valued at about $327 million, would give CKE an immediate presence east of the Mississippi and create a national network of nearly 4,000 burger restaurants throughout 40 states. The Hardee's system includes 788 company-operated Hardee's and 2,364 franchised units.

Initially, the concepts will be dual-branded in two test markets, Peoria, Ill., and a second as-yet-undetermined territory, with the test units serving the Hardee's breakfast - the chain's strongest daypart - and Carl's Jr. burgers and chicken sandwiches. 'Hardee's has a strong following for breakfast that's an older customer,' Hardee's chief executive Steve McManus said in a press conference following the April 28 announcement. 'What Hardee's needs is a younger customer base at lunch and dinner.'

Investment costs for retrofitting restaurants with new signage - using the Carl's Jr. Happy Star logo and other changes, such as the addition of charbroilers, will cost about $50,000 to $75,000 per unit, said McManus, who is expected to retain his leadership role at the chain. He declined to speculate on the volume of staff reductions expected at Hardee's Rocky Mount, N.C., headquarters.

Hardee's also will adopt the 'bigger, messier burger' advertising strategy from Carl's Jr., which targets young, adult males.

'This is a strong marriage of two well-known brands,' said CKE chairman and chief executive William P. Foley II in a statement. 'By dual-branding the concepts, Carl's Jr. can enter established markets beyond the West Coast.'

The blockbuster acquisition had been rumored for weeks as diversified Imasco, whose other holdings include tobacco, retail and drug concerns, expressed a desire to exit from the fast-food business in the United States amid disappointing earnings from Hardee's. Fast Food Merchandisers, Hardee's food processing and distributing business, was not included in the transaction but will continue to supply Hardee's corporate stores, while retaining its existing business with Hardee's franchisees.

The buyout of Hardee's Food Systems represents the largest purchase to date by the aggressive CKE, which over the past year has acquired Summit Family Restaurants and the Taco Bueno chain in addition to infusing large amounts of cash into faltering double-drive-thru operators Rally's and Checkers. CKE also crafted a merger strategy for Rally's and Checkers that would create a 950-unit string of drive-thru restaurants.

Carl's Jr. and Hardee's had been moving in opposite directions. For its most recent quarter, Imasco reported a loss of C$11 million on its Hardee's division. By contrast, the stellar performance of Carl's Jr. propelled parent CKE to report year-end profits of $22.3 million on revenues of $537 million. Hardee's same-store sales fell 7.2 percent for the year, while company-owned Carl's Jr. restaurants posted a 10.5-percent gain in same-store sales in the most recent quarter. Carl's Jr. units generate about $1.123 million annually, while Hardee's restaurants average $918,000, with approximately 30 percent of that figure stemming from breakfast.

Hardee's has made several attempts to jump-start sluggish sales, including the introduction last year of a 'monster menu,' featuring oversized burgers and large omelet biscuits, but the gargantuan offerings did little to raise average guest checks.

More recently, about 100 Hardee's units implemented a test of charcoal-broiled burgers, a technique that was once the chain's signature cooking method but was abandoned in 1985. And earlier this month Hardee's rolled out a trio of steak sandwiches, including a steak-and-egg item targeted for the morning daypart.

Last fall Hardee's agreed to shed 45 restaurants in the Detroit market to segment competitor Wendy's, and earlier this year McDonald's Corp. purchased 184 Roy Rogers restaurants Hardee's had operated in the Baltimore/Washington, D.C., market.

Spartanburg, S.C.-based Flagstar Cos. Inc., Hardee's largest franchisee, said it would continue with its arbitration against Hardee's Food Systems, in which it alleges that HFS breached its licensing agreements and mismanaged the chain's advertising fund, among other charges.