Dive Brief:

• Checkers Drive-In Restaurants Inc., parent company of drive-thru brands Checkers and Rally’s, has reportedly solicited the help of financial advisers to explore a potential restructuring, according to the Wall Street Journal.
• The Wall Street Journal reports that Checkers has nearly $300 million in debt from its 2017 buyout by Oak Hill Capital Partners. 
• Checkers has been selling stores to franchisees in an attempt to bring down that debt. About 79% of the 584-unit Checkers system is franchised, per Technomic data cited by the Wall Street Journal.  

Dive Insight:

The timing of this news may seem a bit surprising. The chains’ drive-thru-only model is an ideal setup to insulate them from the pandemic, as mandated shelter-in-place orders would have little effect. Unlike many other chains, Checkers and Rally’s didn’t have to spend time shifting their operations and marketing those shifts to communicate that they were still open. 

Because of this, Frances Allen, who was named CEO in February, said just last month that the brands were faring better than most. Allen told Franchising.com that the drive-thru-only model is “well positioned for the new normal.” She also told Bloomberg earlier this month that revenue has recovered from a 20% decline at the start of the pandemic.

Still, though the chains may have had an ideal model to navigate the pandemic, few were fully insulated, particularly during the first few weeks when nobody was leaving the house. Further, Checkers & Rally’s issues aren’t new, which means the company was especially vulnerable to any type of disruption. 

For example, sales since that Oak Hill acquisition in 2017 have been in a tailspin, which hasn’t helped pay off that debt. According to Technomic and reported by Restaurant Business, 2019 sales for Checkers were about $535 million, down nearly 2% from the prior year. That prior year wasn’t much better, with system sales at Checkers down nearly 6.5%. At the end of 2018, Restaurant Business reported that the company would have to modify some of its lending agreements if these trends continued. 

Also in late 2018, Restaurant Business published a special report about restaurant chains that are “losing flavor with consumers.” Checkers was among those listed, dropping 6.1 points in “unit appearance and ambiance.” The chain also dropped in food and beverage satisfaction and consumer happiness with technology. 

Those metrics are hard to overcome, particularly in a competitive burger space. In 2019, Checkers was the 16th biggest burger chain by sales, while Rally’s was 20th. That’s not to say the chain hasn’t been trying to correct those low scores. On the tech side, the chains recently added targeted text promotions, partnered with Olo to streamline its delivery orders through a one point-of-sale system and added a partnership with artificial intelligence platform SiteZeus to help with market planning. Allen has also noted that order-ahead mobile ordering will play a bigger role. 

On the menu side, the company just tossed its hat into the chicken sandwich ring with a new Mother Cruncher Chicken Sandwich. Whether these efforts will be enough to right the ship is yet to be seen but, combined with a restructure, it’s clear there is urgency to do just that.