Double-drive-throughs tuning engines: big 3 shift gears to stay on course

Nation's Restaurant News, April 11, 1994 by Theresa Howard

After burning expansion rubber for serveral straight years, the double-drive-through segment's Big 3 are pulling into the pit stops to retune their engines.

Having changed drivers and down-shifted development plans, Really' Hamburgers, Checkers Drive-In Restaurants and Hot 'n Now are rethinking strategies to face a market that has chaged even faster than they've grown. With sales flagging, the trio so working to addrress everything from marketing image to price points.

"It is too early to say whether it [the segment] has bottomed out," says Pipder Jaffrey senior research analyst Allan Jickok. "But I am skeptical that the current environment will remain like this for an extended period to time."

Agrees analyst Bryan Ellit[ of the Robinson-Humphrey Co. Inc.: "This will prove to be a temporary pause in the segment's growth. There remain vast stretches of the population base that have yet tos see their first double-drive-through bamburger restaruant."

While the "Cha-ching" days of double-drive-through growth may only be a temporary lull, carely the slump being felt by the segmnet's leaders is largely related to overexpansion.

In one indication of how saturated the segment has become, Really's and Checkers even swapped stores in order to wipe out direct competition between them in Miami, Atlanta and Memphis.

As part of the $2 million deal, Checkers will acquire nine franchised Rally'a stores in Atlanta and nine in Miami; Rally's will acquire leases or sites for 18 company-owned Checkers stores in Memphis and five other markets.

In the meantime Hot'N Now, after "tempprarily suspending operation" of at least 40 stores about two months ago, is testing various concept modifications. Taco Bell, which operates the chain, would not disclose any details about the tests.

While rapid expansion certainly has taken a toll, intensified competition from the establlished quick-serve giants as well as smaller, regional double-drive-through players has combined to erode the segment's crucial price-value image and main point of differentiation.

McDonald's Burger King and others not only have slapped 99-cent price tags on their larger, premium sandwhiches but also are starting to take sales away from double-drive-through players by opening smaller, non-traditional units in places like gas stations and supermarkets.

"Customers are getting so many options again, "says Professor Don I. Smith of Washington State University. "What the customer still wants is high value. The heavy user puts price ahead of everything else, than speed, then convenience, then quallity. But this in niche marking; there is only opportunity for a handful of national players."

Agrees Boyd Hoback, president of 10-unit Good Times Restaurants: "The double-drive-through market is a fairly narrow niche for two to go head to head. Bdut the market has not been filled out."

"More than anything, this is a transition" period, he adds.

Analyst Ellitt estimates the double-drive-through niche represents 10 percent of the $30 billion fast-food market.

"The idea that they are niche players is very important," says analyst Elliott, who estimates the segment represents about 10 percent of the total U.S fast-food market for fast-food burgers and accessories is a very number."

Meanwhile, gthe new top executives at Rally's Checkers and Hot'n Now have their hands full.

At Checkers, James White took over as president and chief executive from James Mattei, who recently retired, at a time the chain was looking to build existing markets and reduce costs. At Rally's D. Randy Laney assumed the post of chairmen and chief executive when Burst Sugarman announced his retirement to let Laney take Rally's "to the next level."

Steve Carley took the Hot 'Now reins in October as vice president and general manager, replacing Donald Pierce, who had left a few months earlier to head up Arby's. Carley reports to Taco Bell executive vice president Ken Stevens.

The moves at Checkers and Rally's follow difficult fourth-quater results and projected equally disappointing first-quater results for both chains.

Checkers' comparable-store sales figures fell 10 percent at compnay-owned stores, and net income dropped 5 percent, to $3.2 million, on 64-percent rise in revenue, to $55.8 million.

Rally's meanwhile, posted a $10 million loss in net income for the fourth quarter ended Jan. 2, 1994, and a 3.8-percent4 drop in comparable-store sales at company-owned units during the same period.

All three executive teams are aiming to promote the value message through new advertising. Checkers is readying to launch the first advertising effort by its newly tapped agency, The Martain Agency of Richmons, Va., and also is planning new product introductions. newally's hopes to strengthen its low-cost provider position with a commercial where a rocket4 scientist and brian surgeon try to dissect the value clutter.

"The commercial is very focused on the idea that with everybody's dusciybtubg and dealing it is confusing as to where vice president of making, Bruce Ley. "The commercials are designed to resolve that." The spot, which broke March 28, touts the chain's $1.97 combo meal.