CKE Restaurants, parent of the Carl's Jr. hamburger chain, is preparing to acquire one of fast-food's oldest and most maligned brands: Hardee's.
Anaheim, Calif.-based CKE will expand Carl's Jr.'s territory by purchasing the Hardee's trademark and converting Hardee's units west of the Mississippi--and possibly in the rest of the country, according to executives close to the deal.
Neither company returned calls seeking comment. Industry observers pegged the acquisition price, including trademark rights and some 700 company-owned restaurants, at $500 million to $600 million.
CARL'S NAT'L AMBITIONS
CKE Chairman William Foley has publicly voiced his desire to make Carl's Jr. a national brand. It's unclear, however, whether CKE intends to wipe out the Hardee's brand altogether, or continue operating the chain in its strongest region, the Southeast.
Mendelsohn/Zien and Western International Media, both Los Angeles, handle creative and media buying, respectively, for the $29 million Carl's Jr. advertising account. Pearlstein Group, Los Angeles, produces national creative for Hardee's Food Systems $55 million account, with International Communications Group handling media buying.
It's not known how the acquisition would impact agency relationships.
CKE's Mr. Foley--who has been on the lookout for troubled chains--is known for his bold moves, and this may be his boldest yet. Entering the intensely competitive national burger wars is not for the faint-hearted. The over-saturated U.S. hamburger segment grew a modest 2.8% last year, according to restaurant consultancy Technomic.
Still, Carl's Jr. has made a name for itself in the West as a strong regional player with national aspirations. Hardee's is the fourth largest hamburger chain in sales, while Carl's Jr. ranks seventh. A combination of the two would boost Carl's Jr. to the fourth slot, behind McDonald's Corp., Burger King Corp. and Wendy's International.
"If you have a good concept, good marketing, and good management, [CKE] has proved you can make money in this segment," said Robert Derrington, an analyst with Equitable Securities.
Under Mr. Foley's leadership, the once doomed Carl's Jr. has blossomed in the Southwest--same-store sales rose 10.7% for the year ended Jan. 27.
Analysts attribute the turnaround of the 675-unit chain to renovation of dog-eared stores, a focus on char-broiled, juicy hamburgers, and edgy advertising starring Dennis Rodman that bears the tagline, "If it doesn't get all over the place, it doesn't belong in your face."
Hardee's plays to an entirely different crowd. The 3,200-unit chain, owned by Montreal-based Imasco, is strongest in small towns and rural Southeast markets, where it draws older and more blue-collar customers than other chains, according to franchisee Paul Lovin, who owns four stores in Rocky Mount, N.C.
Hardee's has always prided itself on its warm, home-grown advertising, but that image hasn't rescued the chain from dismal sales: 1996 systemwide sales fell 8.9% to $4.1 billion. Same-store sales dropped 7.1% in 1995 and 5.3% last year.
"Imasco is probably thinking of this in the same way Quaker thought of Snapple," said an executive close to Hardee's. "If it gets a halfway decent offer, it'll sell."
Acquiring the Hardee's trademark gives CKE rights to royalties paid by the system's 2,500 franchised units, and renewal rights over franchise agreements. Hardee's currently grants franchisees use of the brand for up to 15 years, with the option to renew.
Inspiring the cooperation of franchisees--and footing the bill for a systemwide conversion, which could run between $50,000 to $100,000 per store--would be a monumental task. Several observers commented that CKE will test the waters by first converting restaurants in the Midwest, where the concentration of Hardee's stores is weak.
Contributing: Alice Z. Cuneo.
Copyright April 1997, Crain Communications Inc.