In this FDD Talk post, you’ll learn the following:
- Section I – Background information on the Checkers and Rally’s franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Checkers and Rally’s franchise, based on Item 7 of the company’s 2018 FDD
- Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Checkers and Rally’s franchise, based on Items 5 and 6 of the company’s 2018 FDD
- Section IV – Number of franchised and company-owned Checkers and Rally’s outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD
- Section V – Presentation and analysis of Checkers and Rally’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:
- 2017 average, median, low, and high net sales for the 119 company-owned and 273 franchised Checkers Restaurants (and 119 company-owned and 109 franchised Rally’s Restaurants) that were open and operating during the entire 53-week period ending January 1, 2018 (the “2017 Fiscal Year”)
- average, median, low, and high net sales during the first 52-week period of operations for the 8 company-owned and 99 franchised Checkers Restaurants (and 5 company-owned and 14 franchised Rally’s Restaurants) that opened between January 1, 2013 and December 31, 2016
- average and median net sales, food and paper costs, labor and benefit costs, and gross margin during the first full 12 months of operation for the 8 new company-owned Checkers Restaurants (and 5 new company-owned Rally’s Restaurants) that were open and operating during the entire 2017 Fiscal Year
- average and median net sales during the first 52-week period of operations, average total cost, average return on investment, and average cash-on-cash return on investment for the 8 new company-owned Checkers Restaurants (and 5 new company-owned Rally’s Restaurants)
- same-store sales information in Fiscal Years 2015, 2016, and 2017 for the company-owned, franchised, and company-owned and franchised Checkers (and Rally’s) Restaurants that were open at least 18 fiscal periods prior to the beginning of the applicable fiscal year of the comparison and that operated continuously during that time
Section I – Background Information
15 Things You Need to Know About the Checkers and Rally’s Franchise
Plans for Expansion With Modular Units
1. At the end of June 2018, Checkers and Rally’s announced its plans to open at least 60 new restaurants by the end of the year. Approximately 30 of these locations will be modular build-outs. Checkers and Rally’s is slated to install 18 modular units by the end of the summer. These modular units are constructed off site in a controlled environment and are then delivered to the location site and installed. Once set, locations typically open 30 to 60 days later.
2. The brand’s modular unit strategy allows franchisees to shave up to 12 weeks off the development process, allowing for lower construction costs and minimizing time spent securing city permits and on construction. The modular stores cost about $100,000 to $300,000 less than traditional units. The increased speed and lower costs allow Checkers and Rally’s corporate and franchisees to expand into markets that were once deemed cost-prohibitive.
3. Additionally, the modular units look different than typical Checkers and Rally’s restaurants. The modular units still feature the brand’s iconic checker patterns and wings but they only have one drive-thru lane instead of the dual format seen at most Checkers and Rally’s locations. According to the company, the single window allows the kitchen to be more efficient and creates an open walk-up window that lets in more light. It also offers more visibility into the kitchen unlike some older units, where employees appear hidden in an alley between drive-thrus. The new window lets customers watch the food being prepared.
4. Jennifer Durham, senior vice president and chief development officer of Checkers and Rally’s, said, “Because we don’t have dining rooms, that’s an important element. It’s kind of a unique experience to be on the outside of the building and have to walk up. You can’t do that with other brands.”
5. Although Checkers and Rally’s is focusing on modular units, franchisees can also choose to build traditional units featuring the brand’s updated design. Checkers and Rally’s is currently in the process of remodeling its system to its current image and expects to be 90 percent complete by 2020.
Explores Expansion Opportunities on the East Coast
6. In late May 2018, the Checkers and Rally’s franchise development team traveled to New York City for the International Franchise Expo (IFE). The trip was an opportunity for the team to meet with aspiring franchisees and to scope out nearby real estate opportunities to continue the brand’s growth trajectory on the East Coast. Checkers and Rally’s has recently ramped up its expansion plans and is on pace to hit 100 new restaurant openings by the start of 2019.
7. Checkers and Rally’s is specifically looking at a variety of markets in states including Connecticut, Massachusetts, Maryland, Delaware, Pennsylvania, New York, New Jersey, and Virginia. According to the brand, there is capacity to grow by more than 350 new restaurants in these states by tapping into markets that have not yet been introduced to the Checkers and Rally’s brand.
Reignites Food Wars After Taco Bell’s Fry Launch
8. Around the beginning of February 2018, Checkers and Rally’s launched an ad campaign challenging Taco Bell, which added fries to its menu for the first time. Checkers and Rally’s did something similar in 2016 when Burger King launched hot dogs, starting the “Wiener Wars.” Checkers and Rally’s launched a full-page ad in USA Today reminding the world that the brand was the first to sell fast-food hot dogs. The ad led to a 200 percent increase in hot dogs sold over the same period the previous year, and helped to cement Checkers and Rally’s status as the fast-food hot dog leader.
9. This time around, Checkers and Rally’s launched a full-page advertisement in the Los Angeles Times as a formal announcement that the brand was up for a fry fight. The ad invited Taco Bell employees to come to any Checkers and Rally’s restaurant for some “deliciously seasoned pointers” and to learn the art of the fry from experts. Checkers and Rally’s claim that its fries are the best, is backed up by industry accolades including the brand’s Famous Seasoned Fries landing at No. 1 on Restaurant Business’s 2017 list of the “Top 10 Most Craveable Fry Chains.”
10. Checkers and Rally’s were originally started as separate restaurant chains but have merged since 1999. Today, both restaurants are essentially the same but operate under different names depending on which part of the United States the restaurant is located. Checkers serves the Southeast and Northeast, while Rally’s is used for the Midwest and California. There is also some overlap between both brands in some areas.
11. Checkers was founded in 1986 by James Mattei in Mobile, Alabama, while Rally’s was started in 1985 in Louisville, Kentucky. Both Checkers and Rally’s had similar concepts that focused on selling quality hamburgers primarily through drive-thru service.
12. Rally’s started franchising in 1986 and the company went public in 1989. A year later, Burt Sugarman was put in charge of Rally’s and he pushed for expansion. Initially, the quick expansion worked and Rally’s became the double drive-thru leader for a few years in the early 1990s. However, by the late 1990s, Rally’s began to struggle and negotiations for a merger with Checkers started.
13. While Rally’s initially did better than Checkers in the early 1990s, Checkers gained prominence and started to draw customers away from other major burger chains. Checkers’ value combo meals were a better deal and Checkers used this success to open new locations. Eventually, Burger King, McDonald’s, and Wendy’s also started selling value-priced sandwiches and combo meals to compete with both Checkers’ and Rally’s lower prices. Checkers’ sales began to sag around the same time as Rally’s.
14. Both companies agreed to affiliate with each other, with Checkers providing administrative services for Rally’s. The companies also entered into a stock exchange agreement, which resulted in an unofficial merger. Despite the help from Checkers, Rally’s continued to struggle and in 1999 the companies decided to merge operations in a stock swap. Since then, Checkers and Rally’s have been operated by the same parent company and both brands continue to grow across the U.S.
Entrepreneur’s Franchise 500
15. Checkers and Rally’s ranked No. 140 on Entrepreneur’s 2018 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of Checkers and Rally’s franchise costs, based on Item 7 of the company’s 2018 FDD.
Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees
- Please click here for detailed information on Checkers and Rally’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
- Outlets at the Start of the Year: 328
- Outlets at the End of the Year: 363
- Net Change: +35
- Outlets at the Start of the Year: 363
- Outlets at the End of the Year: 395
- Net Change: +32
- Outlets at the Start of the Year: 395
- Outlets at the End of the Year: 442
- Net Change: +47
- Outlets at the Start of the Year: 188
- Outlets at the End of the Year: 175
- Net Change: -13
- Outlets at the Start of the Year: 175
- Outlets at the End of the Year: 155
- Net Change: -20
- Outlets at the Start of the Year: 155
- Outlets at the End of the Year: 135
- Net Change: -20
Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis
Part 1 – Statement of Average and Median Net Sales of Checkers Restaurants
- As used in this Item 19, “Net Sales” means all revenue derived from operating the Franchised Restaurant, including the aggregate of all sales amounts from food, beverages, and other products sold and services rendered at the Premises or otherwise rendered in connection with your Franchised Restaurant, and all monies derived from sales at or away from the Franchised Restaurant, whether from cash, check, credit or debit card, barter, exchange, trade credit, or other credit transactions, but: (1) excluding all federal, state, or municipal sales, use, or service taxes collected from customers and paid to the appropriate taxing authority; and (2) reduced by the amount of any documented refunds, credits, allowances, adjustments, promotional discounts, and charge-backs the Franchised Restaurant provides to customers in good faith.
Table A – All Checkers Restaurants
- Table A comprises Net Sales information for the 119 company-owned Checkers Restaurants and the 273 franchised Checkers Restaurants that were open and operating during the 53-week period ending January 1, 2018 (the “2017 Fiscal Year”).