CKE Restaurants Inc.’s new Chief Executive Andrew Puzder is said to be moving the top management of the Anaheim-based company to Santa Barbara, where he and Chairman Bill Foley are based, according to a representative for CKE’s franchisees.
Daljit Hundal, president of the Star Franchise Association, said Puzder is moving several top executives to Santa Barbara, including Chief Financial Officer Carl Strunk, and executive marketing vice president Robert Wisely. Other senior vice presidents and vice presidents also have made the move or will soon, Hundal said.
CKE executives were unavailable for comment last week, according to a spokeswoman who said she could not confirm Hundal’s description. She noted that the executives he named still have offices in Anaheim.
Puzder, president and chief executive CKE’s Hardee’s Food Systems Inc., took the reins at CKE in September.
“Puzder wants to have decision-makers on hand,” said Hundal, a former CKE executive. “He was already based there (in his former role as general counsel and secretary) and William Foley is out there.”
But Hundal said franchisees are leery about a shift in power to Santa Barbara.
“(Puzder) sees (the move) as the way to go,” Hundal said. “But franchisees feel it’s not the way to go and are concerned they are becoming too isolated out there.”
A move to Santa Barbara had been broached under former CKE Chief Executive Tom Thompson, Hundal said.
“Tom didn’t want to go out there,” said Hundal, who operates 14 Carl’s Jr. restaurants in the San Francisco area. “His feeling was he was where the action was and operations people were.”
In a separate development, a group of disgruntled franchisees unhappy with the direction of Hardee’s, CKE’s largest chain, recently filed a request for arbitration to resolve their differences. The group represents an estimated 467 of Hardee’s 1,401 franchised stores, according to a source close to the situation.
“The arbitration was filed by a number of franchisees, but not the majority of them,” said Michael Murphy, CKE’s general counsel.
Murphy said the two sides are headed for talks.
“They are going to withdraw their arbitration pending discussions we are going to have in the next couple of weeks,” he said.
Both sides have agreed not to discuss the case, Murphy said. But analysts and observers see several reasons why franchisees might have a beef with the company.
CKE has spent nearly three years trying to remodel the Hardee’s chain and improve its image, but the process has taken longer than anticipated and completion is now expected in 2002.
Andrew Barish, an analyst at Robertson Stephens in San Francisco, said that typically franchisees become upset with a company when they don’t believe they are getting the support they need, and sometimes they’ll file for financial compensation.
“The longer-term trends have been disappointing in the Hardee’s system,” he said. “It has been going on before and since CKE took over. There have been some marketing missteps and now they are undergoing a process whereby they are having to sell company stores back to franchisees. Although the franchisees are stepping up and buying them, there needs to be more direction of the brand and the business. It’s been disappointing.”
Since its July 1997 acquisition of Hardee’s, CKE has been trying to convert some of the stores to the new Star Hardee’s concept that combines Hardee’s breakfast menu with Carl’s Jr.’s charbroiled hamburgers.
“The Star Hardee’s concept has been disappointing overall,” Barish said. “It’s worked in some markets that had advertising behind it and operations working, but the key is to get all three of those aspects together. Now the remodels of Star Hardee’s have slowed down due to capital restraints and refranchising efforts.”
On the other hand, Hundal said that despite the points of disagreement, franchisees were pleased overall with what Puzder had to say at a franchise conference in Colorado Springs in October.
“He’s pretty straight and direct, and he is taking the actions that need to be taken to get debt straightened out, and he is reorganizing to cut out the fat,” Hundal said. “He sees that there hasn’t been a close working relationship between Carl’s and Hardee’s and he wants to get that going.”
Among the changes Puzder has proposed is consolidating some operations such as the chains’ up-to-now separate product research and development facilities. He also wants to strengthen relationships with franchisees and move away from the “us-and-them,” attitude of the past, Hundal said.
“He wants to cut out corporate bureaucracy,” Hundal said. “He said, ‘We are a more franchised company, and we want to be more franchise-friendly and supportive.'”
CKE, which has reported three consecutive quarters of losses stemming from the struggling Hardee’s division, is taking steps to whittle down its long-term debt, which grew from $138.7 million in 1998 to $522.9 million in 1999.
CKE is in the middle of a program to sell 500 company-owned restaurants from its 2,762-unit Hardee’s chain to franchisees, to raise about $200 million, and 90 of Carl’s Jr.’s restaurants to bring in another $90 million. It had planned to complete the sell-off by next month, but so far has sold 323 Hardee’s and 43 Carl’s Jr. company-owned restaurants to franchisees this year for a total of $118 million. CKE also is selling its 125-unit Taco Bueno chain for more than $90 million, in a deal set to close by the end of December.
Meanwhile, the company has struggled to meet certain conditions of its line of credit for the period ended Aug. 14, securing waivers that oblige it to pay $150 million by Jan. 31.
Also, the company’s stock price lost 80% of its value in 1999 and about 52% of its value year-to-date, sinking from around 30 in January 1999 to the last week’s 2 level. n
