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 2019 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 2019 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 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD
- Section V – Presentation and analysis of Checkers and Rally’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:
- 2018 average, median, low, and high net sales for the 122 company-owned and 420 franchised Checkers Restaurants (and 126 company-owned and 155 franchised Rally’s Restaurants) that were open and operating during the entire 52-week period ending December 31, 2018 (the “2018 Fiscal Year”)
- average, median, low, and high net sales during the first 52-week period of operations for the 10 company-owned and 104 franchised Checkers Restaurants (and 4 company-owned and 23 franchised Rally’s Restaurants) that opened between January 1, 2014 and December 31, 2017
- 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 4 new company-owned Rally’s Restaurants) that were open and operating during the entire 2018 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 10 new company-owned Checkers Restaurants (and 4 new company-owned Rally’s Restaurants)
Section I – Background Information
20 Things You Need to Know About the Checkers and Rally’s Franchises
Adds Two New Modular Manufacturers to Provide Regional Options for Franchisees
1. At the end of November 2018, Checkers & Rally’s announced the addition of new modular manufacturer partners, which will extend the reach of the brand’s popular modular restaurant design option. In addition to original modular partner Valiant, based in Florida, franchisees will soon be able to work with two new modular partners in different regions of the country: Madison Industries of California and Z Modular in Alabama.
2. Bret Cunningham, director of design and construction for Checkers & Rally’s, said, “By aligning with these two new partners, we expand the geographic areas where we can build modular restaurants, so franchisees across the country can utilize the modular design. Having regional partners reduces shipment costs and lead times, making the modular design even more attractive for our franchisees.”
3. Checkers & Rally’s franchisees that choose the modular option save money on build-out costs, and because the units are built offsite in a controlled environment, there are no delays due to weather. With the modular design, franchisees are able to expand into markets that were once thought to be cost-prohibitive, and also save time spent securing city permits.
4. According to Jennifer Durham, chief development officer of Checkers & Rally’s, “Checkers & Rally’s is committed to increasing profitability for our franchisees, and that starts during the construction process. The modular option not only lowers build out costs, but also speeds up the construction process so franchisees can open their restaurants and start making money more quickly. By adding two new modular manufacturers, we will be able to continue building up our development pipeline and provide regional options for our franchisees to continue growing with the brand.”
Launches New Franchisee-Friendly Delivery Platform
5. Near the end of March 2019, Checkers & Rally’s announced the launch of its new delivery platform, the most comprehensive and franchisee-friendly delivery system in all of QSR. The platform brings five national delivery services – Uber Eats, DoorDash, Postmates, Grubhub, and Amazon Restaurants – together under one single, seamless point-of-sale (POS) system.
6. Integrations via Olo will give customers the ability to order the brand’s food from their favorite delivery service, while giving franchisees and restaurant operators a profitable and operationally simple way to fulfill those orders.
7. Rick Silva, president and CEO of Checkers Drive-In Restaurants, Inc., said, “While some of the biggest brands in QSR have committed to a single delivery service, we wanted to give Checkers & Rally’s guests more ways to bring our amazing burgers, famous seasoned fries and exciting flavors to their front doors. At the same time, we wanted to provide our franchisee community with a fully integrated platform that would make it easy and profitable to fulfill delivery orders. It’s a perfect way to satisfy both our guests and our franchisees.”
8. Unlike other delivery services, where restaurants have to add a new order-receiving tablet for each third-party delivery provider they use, Checkers & Rally’s has developed a unique process where orders from delivery services feed into a single POS system and right into their kitchen.
9. Additionally, the Checkers & Rally’s system doesn’t require cashiers to re-key delivery orders into the register like most delivery systems do. Instead, delivery orders integrate directly into the POS system, right along with traditional drive-thru and walk-up orders, reducing labor, time, and user error. As a result, the Checkers & Rally’s delivery system is the most comprehensive and most efficient platform in QSR.
10. Silva added, “We knew that delivery had the potential to drive sales and profits for our restaurants in exciting new ways, but at the same time, we also knew that a technological innovation this significant had to be seamless for both our guests and our franchisees. We took the necessary time to test and refine our delivery technology and seamlessly incorporate it into our operating systems so that we can now offer our guests and our franchisees the easiest and most inclusive delivery program in the category.”
11. Checkers & Rally’s partnered with Olo, an integrated ordering and delivery platform provider, to develop this innovative approach to delivery. Noah Glass, founder & CEO of Olo, said, “The leadership team at Checkers & Rally’s wasn’t satisfied with traditional delivery systems that overwhelm restaurant teams with multiple tablets that need to be constantly monitored and manually entered into the restaurant’s POS systems. We embraced their innovative and collaborative approach, working with them to create one of the deepest and easiest systems in the restaurant industry.”
12. Checkers & Rally’s chose to team up with Uber Eats, DoorDash, Postmates, Grubhub, and Amazon Restaurants because of their significant experience in the restaurant delivery space. At the same time, Checkers & Rally’s was proud to become one of the first national quick-service restaurant partners with Amazon Restaurants.
13. According to Jerry Rapisarda, general manager of Amazon Restaurants, “We are excited to welcome Checkers & Rally’s as a key national QSR option for customers. We’re always looking for ways to bring customers even more options when it comes to food, and we think Checkers & Rally’s is a perfect fit that our customers will love.”
14. Rather than leaving its franchisees to try to individually manage and coordinate their third-party delivery business with multiple providers, Checkers & Rally’s has centralized the entire business model, building a delivery support team that offers franchisees a single point of contact for their delivery business, including contract negotiations, technology support, training, and menu management. This unique approach simplifies the business for franchisees and ensures that delivery orders are as profitable as traditional orders coming through the drive-thru.
15. Initially, Checkers & Rally’s were two different companies founded around the same time in separate parts of the United States. Checkers was founded in 1986 by James Mattei in Mobile, Alabama, while Rally’s was started in 1985 by Jim Patterson in Louisville, Kentucky. Both restaurants had similar concepts, selling quality burgers at an affordable price.
16. Checkers & Rally’s merged in 1999. Typically, the Checkers branding is used in the Southeast and Northeast, while Rally’s is used in the Midwest and California, although in some areas the brands overlap.
17. Before Checkers & Rally’s officially merged in 1999, the two companies had already been working together since 1994. That year, Rally’s, through an exchange of property and a waiver arrangement, acquired some leases for Checkers restaurants and converted five existing units into Rally’s restaurants.
18. In 1997, Rally’s entered a management agreement with Checkers. Under the agreement, Checkers began providing various administrative services for Rally’s. After Rally’s struggled for a few more years, its parent company, CKE Restaurants, finally sold the company to Checkers.
19. In 2017, Checkers & Rally’s were acquired by Oak Hill Capital Partners for $525 million.
Entrepreneur’s Franchise 500
20. Checkers & Rally’s ranked No. 88 on Entrepreneur’s 2019 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of Checkers & Rally’s franchise costs, based on Item 7 of the company’s 2019 FDD.
Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees
- Please click here for detailed information on Checkers & Rally’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
- 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: 442
- Outlets at the End of the Year: 460
- Net Change: +18
- 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
- Outlets at the Start of the Year: 135
- Outlets at the End of the Year: 125
- Net Change: -10
Section V – Financial Performance Representations (Item 19, 2019 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 the 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 122 company-owned Checkers Restaurants and the 420 franchised Checkers Restaurants that were open and operating during the 52-week period ending December 31, 2018 (the “2018 Fiscal Year”).