‘Pandemic Proof’ Checkers & Rally’s Have Shifted To Expansion Mode

Frances Allen was named the new CEO of Checkers and Rally’s one month before the first coronavirus-induced lockdowns were imposed in the U.S. 

Rather than execute on her 100-day plan, Allen’s priorities shifted to keeping employees and customers safe, and keeping business open in general. The timing was no doubt delicate for the restaurant industry–U.S. restaurant and bar sales dropped 50% in April alone. 

For Checkers and Rally’s, the timing was especially precarious. Both chains have experienced declining sales throughout the past three years, according to Restaurant Business, mounting “unsustainable” debt in the process. Fitch Ratings noted the chain was positioned for potential bankruptcy. 

In other words, Allen certainly had her work cut out for her, pandemic or not. In June, the company hired restructuring advisors.

If there is a silver lining here, it is that the Checkers and Rally’s double drive-thru-heavy footprint is ideal for an era defined by mandated dining room closures and anxious consumers. In fact, plenty of dining rooms remain closed or functioning at a fraction of their intended capacity, but the drive-thru is more popular than ever.

That’s saying a lot considering most fast food players generate more than 70% of their business from the channel. In the middle of the COVID-19 crisis, drive-thru traffic jumped by double digits and some brands, including McDonald’s
MCD
, have reported that up to 90% of its business has come from the window.

As such, the crisis has forced non-drive-thru establishments, such as Shake Shack
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or even Wawa, to reconsider their real estate portfolios more toward the channel. 

Checkers & Rally’s have also gotten a bit of a tailwind from their delivery platform, added in 2019 with five national services–Uber Eats, DoorDash, Postmates, Grubhub
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and Amazon Restaurants. Delivery has become table stakes for many operators during the crisis and Checkers & Rally’s is no different. Pre-COVID, delivery mixed at about 4 to 5% for the brands. Now it represents a steady 10% of sales. 

“Some QSRs may mix a little higher, but we kept our delivery prices higher than our restaurant prices because we want to keep those delivery sales profitable,” Allen said. “We’re still finding that delivery is helping us bring in a new customer because it gives them a new option.” 

The pandemic has also helped boost the chain’s order-ahead functionality–so much, in fact, Allen said the chains are starting to convert its restaurant models so that one of the two drive-thru lanes is dedicated to just delivery and order-head business. As of right now, about 50% of the company’s units have been converted, while the franchisee conversions are just getting started. 

“We’ve already got the model nailed and we’ll be growing it as fast as we possibly can,” Allen said. 

That’s not to say these past few months have been easy. Like the entire industry, the company reeled from a challenging March and early April. Unlike much of the industry, however, the company’s sales began turning positive as early as mid-April. Allen attributes the boost to the $600-a-week federal stimulus program. 

“That’s when we started to see sales really turn around and we’ve been positive ever since,” Allen said. 

To explain this sustained sales trend, Allen goes back to that drive-thru model, as well as a rejuvenation program put into place earlier this year.

“There’s a reason we’re starting to see competitors experimenting with drive-thrus more now,” she said. “I think our model has helped us to be considered somewhat pandemic proof, which is really good.” 

As such, franchisee interest has picked up throughout the past few months. Allen said the company had 160 franchisees prior to the pandemic and, since April, 28 new franchisees have been approved. 

“A lot of franchisees are showing interest in us because of either our diversification or our pandemic-proof model,” Allen said. “It’s amazing to see the renewed interest in our brand. The stimulus check was an impetus to our sales turnaround, but we had a lot of initiatives underway that have helped us, from delivery and order ahead–we just recently brought those forward.”

At the onset of the pandemic, 15 new operational procedures were put into place, like color-coded gloves for handling money versus food. So, too, were initiatives like trimming down the menu–part of that rejuvenation plan.

“We had a menu optimization plan to make it easier for guests to navigate the menu. We took items off the menu that weren’t profitable or that caused extra labor and made our chicken and Buford (burger) more front and center, which made it much simpler to combo up,” Allen said.  

That latter move boosted full-price combos from a quarter of the company’s sales mix in 2019 to over one-third of the mix now, driving higher average checks. It’s also worth noting that the chains launched a new “Mother Cruncher” Chicken Sandwich in June, injecting the brands into a category (and therefore a consideration set) that has been an absolute juggernaut throughout the past year. 

At least thus far, it appears the plan is working. Allen claims the company outperformed its QSR competition by 1,500 basis points through Q2.   

“Some of that is because they have breakfast, some of that is because they have dine-in, some of it is because of the initiatives we have put into place. We were expecting a drop off in sales as those supplemental checks went away. That didn’t happen. Our sales have remained strong and we have kept our momentum up,” Allen said. “That shows we’re doing a lot of good things. Our drive-thrus are well positioned for this new normal, which has me optimistic. We just know how to do this.”