Carl’s Jr. Executive Summary

Carl’s Jr. is a regional QSR chain with a West Coast orientation and a large burger mix. Brand attributes include: burgers with double patties & premium Thickburger Angus platform; hand-breaded chicken sandwiches & tenders; charbroiling for burgers & certain chicken sandwiches; bold flavor options (addressing large exposure to the Hispanic demo); made-from-scratch biscuits; and milkshakes made with hand-scooped ice cream. Significant innovation ramp-up starting in 2020 helps increase trial/brand reach as the chain seeks to find new ways to “Feed Your Happy” by satisfying their fans’ ultimate cravings. Convenience benefits from above average drive-thru speed and an online ordering platform was recently added in March 2021, including order-ahead capabilities on its app. Strong 2020 system comps reflected the benefit of a drive-thru model during California’s excessive dining restrictions. Also, government stimmy helped temporarily increase the disposable income for Carl’s key young male target market. Building on this momentum, strong YTD comps through the first 3 quarters of 2021 further benefit from traction with the brand’s menu and marketing improvements. All-the-same, high rent and labor costs on the West Coast make it difficult for the brand to sustain price value as a premium positioned brand in an increasingly price sensitive market post-stimmy. While the brand would like more recognition for its larger patty size, it is not clear that customers will pay-up for bigger patties. Also, the brand’s smaller scale and share of voice necessitates elevated ad spend as a % of sales and makes it difficult to support development outside of core markets. Net unit count declines over the last 4 calendar years also reflect a relatively low sales-to-investment ratio. In conclusion, while Carl’s Jr. benefits as a QSR purveyor of tasty burgers in a drive-thru world, the chain must ultimately deal with its need to compete around price value post-stimmy while navigating the elevated operating costs of the West Coast.