In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Checkers & Rally’s franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Checkers & Rally’s franchise, based on Item 7 of the company’s 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Checkers & Rally’s franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Checkers & Rally’s outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Checkers & Rally’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020 average, median, low, and high net sales for the 119 company-owned and 330 franchised Checkers Restaurants (and 127 company-owned and 142 franchised Rally’s Restaurants) that were open and operating during the entire 52-week period ending December 28, 2020 (the “2020 Fiscal Year”)

• average, median, low, and high net sales during the first 52-week period of operations for the 1 company-owned and 109 franchised Checkers Restaurants (and 3 company-owned and 27 franchised Rally’s Restaurants) that opened between January 1, 2016 and December 30, 2019

• 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 1 new company-owned Checkers Restaurant (and 3 new company-owned Rally’s Restaurants) that were open and operating during the entire 2020 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 1 new company-owned Checkers Restaurant (and 3 new company-owned Rally’s Restaurants)

Section I – Background Information

24 Things You Need to Know About the Checkers & Rally’s Franchise

Announces $20 Million Capital Injection to Fuel Aggressive Growth Plans

1.  In mid-January 2021, Checkers & Rally’s announced that it had received a $20M capital injection from Oak Hill Capital Partners IV (Oak Hill), a leading private equity firm and owner of the drive-thru concept. The injection of capital will be used to fund Checkers & Rally’s aggressive five-year growth plan.

2.  Peter Armstrong, principal of Oak Hill, said, “Checkers has demonstrated strong performance period after period despite the significant challenges brought by the events of 2020. Company and franchised restaurants recorded high single digit same-store-sales (SSS) gains in 2020 and that momentum is continuing into the first weeks of 2021 because of the strategic marketing and operations plans rolled out before the pandemic, which were enhanced by the demand for contactless drive-thru and delivery experiences. We have great confidence in the Checkers management team, and we are pleased to support them in their plans for the future.”

3.  Checkers & Rally’s resilient operating model, with closed kitchens, double drive-thrus, and a dedicated e-commerce pick up lane, has garnered tremendous interest from the quick-service restaurant (QSR) franchising community. In fact, the brand approved 40 new franchisees in 2020 and has 72 new locations in the development pipeline. Oak Hill approved the capital injection following the company’s successful debt amendment efforts at the end of last year.

4.  Frances Allen, president and CEO of Checkers Drive-In Restaurants, Inc., said, “I am tremendously proud of the work accomplished by our Checkers & Rally’s family last year, including our management team, our restaurant support center, our franchisees and operators, and especially our hardworking general managers and crew members who showed up every day despite the challenges of COVID-19 to serve our guests and our communities. I look forward to investing in our people, our operations and our restaurants in the months ahead to continue our tremendous momentum in 2021 and beyond.”

Unveils Restaurant of the Future

5.  At the end of January 2021, Checkers and Rally’s unveiled plans for a restaurant of the future at the ICR Conference, one of the largest investment conferences of the year. Construction plans are already underway to fully reimage the first restaurant in Lakeland, Florida, and it will be completed by early summer 2021. The design rollout is a key piece of the brand’s aggressive five-year growth plan that will be funded by the $20M capital injection that was announced earlier in the week from Oak Hill Capital Partners IV (Oak Hill), a leading private equity firm and owner of the drive-thru concept.

6.  According to Frances Allen, president and CEO of Checkers & Rally’s, “As an organization, we believe we have the opportunity to create big and small wins for our guests, employees, and communities every day, and this new building helps us do just that. The new external design and reimagined kitchen will make it easier for us to serve hot, delicious food quickly for frictionless guest experiences. Our employees will be empowered to do a great job with new equipment in a building they can be proud of, and our new restaurants will be bright, fun, stress-free places where members of our communities can feel appreciated and respected.”

7.  The restaurant of the future design brings a bold, contemporary style to Checkers & Rally’s locations while honoring the brand’s iconic image. But more than an exciting new look, the concept has also been designed to provide better experiences at the walk-up windows, patios, and drive-thrus. At the same time, the restaurant’s interior has been arranged for greater crew comfort, easier order taking, and efficient service.

8.  The new restaurant was also designed to ensure strong value for franchisees. Like Checkers & Rally’s current modular buildings, the new design fits on a smaller real estate footprint than most other QSR concepts, and the interior has been engineered for efficiency and speed.

9.  Allen added, “With our traditional double drive-thru model, Checkers & Rally’s has a 35-year head start on the drive-thru-only trend that we’re seeing in QSR today. We also have tremendous growth momentum. In 2020, we added more than 70 locations to our pipeline, and we approved 40 new franchisees to join our system. Moreover, we have plenty of room to grow, with 3x white space in our existing markets and opportunities to expand to new markets as well.”

10.  After the first reimage is opened this summer, the brand plans to perfect the design based on learnings, and then rollout the model to its existing restaurant base as well as new company and franchisee restaurant development in the fall.

Launches New National Ad Campaign Highlighting Everyday Heroes

11.  In mid-February 2021, Checkers & Rally’s announced that it was highlighting everyday heroes in its new national ad campaign that launched on February 15, 2021. Checkers & Rally’s has always kept guests at the heart of both its marketing and operations, and the new campaign is designed to offer guests everyday wins – something we could all use more of these days.

12.  The first spot features “Diego,” a young man heroically helping his friend move, carrying heavy boxes, climbing stairs, loading the truck, and working up a big appetite. He’s definitely earned a win, and he gets one at Checkers & Rally’s with the new Super Loaded Buford limited-time offer.

13.  A core component of the brand’s DNA is offering rewards to the hardworking and the often-underestimated everyday hero. These are the people who have continued to work, educate, support, and provide essential services to us throughout the most challenging times; the moms and dads who have balanced home schooling and work; and so many others who deserve a win every day.

14.  As the campaign rolls out over the next several months, future spots will include a young woman who works long hours on her feet as a hostess and a dad who spends his entire day helping his son with a messy science project. Both of these people need a win, and they find it at Checkers & Rally’s.

15.  Dwayne Chambers, CMO of Checkers & Rally’s, said, “This campaign represents so much more than just a marketing effort. This is about demonstrating to our guests that we see how hard they are working, we see the challenges they’ve had to overcome, and we are dedicated to giving guests a stress-free and delicious respite. 2020 was a difficult year, but we managed to thrive throughout it, and we are carrying exceptional momentum into 2021. Now, we are dedicated to providing wins for the people who really need them, each and every day.”

16.  As serious as Checkers & Rally’s is about rewarding everyday heroes, the brand’s new ad campaign is also playful. In keeping with the style guests have come to know and love – a style that introduced item names like the Big Buford and the Mother Cruncher Chicken Sandwich – the campaign is bold, offbeat, and confident as well as inspiring and genuine.

17.  Checkers & Rally’s new ad campaign also introduced an enticing new limited-time offering, a more-is-more take on the classic Big Buford, “The Super Loaded Buford,” which includes two large hand-seasoned, 100% beef hamburger patties topped with two slices of melted American cheese, caramelized onions, crispy onions, Checkers’ famous seasoned fries, bacon, dill pickles, ketchup, and mayo all served on a toasted, bakery-style bun.

18.  Checkers & Rally’s new ad campaign was developed by the brand’s in-house agency, led by Chambers, in creative production partnership with Fitzgerald and Company. Chambers joined the Checkers & Rally’s team in 2019, bringing vast experience working with major brands like Sonic, Red Robin, P.F. Chang’s China Bistro, Inc., Krispy Kreme, Fuddruckers & Koo Koo Roo, and Noodles & Company. One of the first changes he made was bringing the creative team in-house. This campaign marks the second major marketing moment for the brand in the last two months, coming on the heels of the Mother Cruncher Monster Truck event in December 2020.

Company History

19.  Checkers and Rally’s were founded as separate companies with similar concepts, and merged in August 1999. Rally’s was started in 1985 by Jim Patterson in Louisville, Kentucky, while Checkers was founded a year later by Jim Mattei in Mobile, Alabama.

20.  Mattei started in the restaurant industry as a Wendy’s franchisee, but his stores didn’t perform well. However, he realized that half of the franchise’s business was from the drive-thru window and he felt that the large dining room, large parking lot, and extensive menu were unnecessary business expenses. He then developed the idea for Checkers as a drive-thru only restaurant that had a downsized kitchen.

21.  Rally’s founder Jim Patterson had a similar idea as Mattei and started Rally’s as a double drive-thru system also with a smaller kitchen. A year after it was founded, Rally’s started franchising and the business grew by buying out similar concepts such as Maxie’s of America, Snapps Drive-Thru, and Zipps Drive-Thru. In 1996, Rally’s was acquired by CKE Restaurants, parent company of Carl’s Jr. and Hardee’s. A few years later, CKE sold Rally’s to Checkers.

22.  Over the next few years, Checkers & Rally’s continued to expand and grow outside of the Southern United States. In June 2006, the company went private through a merger with Taxi Holdings Corp., an affiliate of Wellspring Capital Management, a private equity firm. Less than a decade later, in 2014, Wellspring sold Checkers & Rally’s to private equity firm Sentinel Capital Partners.

23.  Three years later, Checkers & Rally’s was acquired by Oak Hill Capital Partners, which still owns the company today. There are now Checkers & Rally’s restaurants across 28 states and Washington, D.C.

Entrepreneur’s Franchise 500

24.  Checkers & Rally’s ranked No. 162 on Entrepreneur’s 2021 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 2021 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 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year:  442
• Outlets at the End of the Year:  460
• Net Change:  +18

2019

• Outlets at the Start of the Year:  460
• Outlets at the End of the Year:  464
• Net Change:  +4

2020

• Outlets at the Start of the Year:  464
• Outlets at the End of the Year:  421
• Net Change:  -43

Company-Owned

2018

• Outlets at the Start of the Year:  135
• Outlets at the End of the Year:  125
• Net Change:  -10

2019

• Outlets at the Start of the Year:  125
• Outlets at the End of the Year:  122
• Net Change:  -3

2020

• Outlets at the Start of the Year:  122
• Outlets at the End of the Year:  134
• Net Change:  +12

Section V – Financial Performance Representations (Item 19, 2021 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 119 company-owned Checkers Restaurants and the 330 franchised Checkers Restaurants that were open and operating for at least 355 days during the 52-week period ending December 28, 2020 (the “2020 Fiscal Year”).

Company-Owned

• Average Net Sales 2020 Fiscal Year:  $1,110,938
• Number of Restaurants:  119
• % Attaining or Exceeding Average:  55 or 46%
• Median Net Sales 2020 Fiscal Year:  $1,082,149
• Low Net Sales 2020 Fiscal Year:  $536,970
• High Net Sales 2020 Fiscal Year:  $1,871,569

Franchised

• Average Net Sales 2020 Fiscal Year:  $1,044,298
• Number of Restaurants:  330
• % Attaining or Exceeding Average:  133 or 40%
• Median Net Sales 2020 Fiscal Year:  $962,043
• Low Net Sales 2020 Fiscal Year:  $201,833
• High Net Sales 2020 Fiscal Year:  $2,727,610

Table B – First Year of Operations for New Checkers Restaurants

• Table B comprises Net Sales information during the first 52-week period of operations for the 1 company-owned Checkers Restaurant and the 109 franchised Checkers Restaurants that opened between January 1, 2016 and December 31, 2019 (each, a “New Checkers Restaurant”).

Company-Owned

• Average Net Sales During First 52-Week Period of Operations:  $1,073,970
• Number of Restaurants:  1
• % Attaining or Exceeding Average:  1 or 100%
• Median Net Sales During First 52-Week Period of Operations:  $1,073,970
• Low Net Sales During First 52-Week Period of Operations:  N/A
• High Net Sales During First 52-Week Period of Operations:  N/A

Franchised

• Average Net Sales During First 52-Week Period of Operations:  $860,889
• Number of Restaurants:  109
• % Attaining or Exceeding Average:  54 or 49%
• Median Net Sales During First 52-Week Period of Operations:  $853,551
• Low Net Sales During First 52-Week Period of Operations:  $290,619
• High Net Sales During First 52-Week Period of Operations:  $1,759,367

Part 2 – Statement of Gross Margin (New Company Checkers Restaurant)

• The Statement of Gross Margin for the New Company Checkers Restaurant consists of the reported Net Sales, food and paper costs, and labor and benefit costs for the 1 company-owned New Checkers Restaurant that was open and operating during the entire 2020 Fiscal Year (“New Company Checkers Restaurant”).

• The figures included below represent the New Company Checkers Restaurant’s operating expenses and Net Sales during its first 12 months of operation. The 1 New Company Checkers Restaurant included in the table below consists of a Freestanding Restaurant located in Hialeah Gardens, Florida.

New Restaurant

• Net Sales:  $1,073,970 (100.0%)
• Food and Paper Costs:  $298,361 (27.8%)
• Labor and Benefit Costs:  $322,060 (30.0%)
• Gross Margin:  $453,549 (42.2%)

• Food and Paper Costs. Food, paper, and packaging costs, less supplier rebates.

• Labor and Benefit Costs. Wages, bonuses, payroll taxes, workers’ compensation, medical insurance, and other benefits.

• Gross Margin equals Net Sales less food and paper costs and labor and benefit costs.

• Restaurant-level EBITDA for the New Company Checkers Restaurant reported above was 14.8% of sales, or $159,402, after royalties, occupancy, and other operating costs of $294,147.

• Royalties, occupancy, and operating costs include rent, property taxes, marketing expenditures (NPF contributions, regional cooperative contributions, and Restaurant-specific promotions), utility costs (electricity, gas, water, and sewer), presumed royalties of 4% of Net Sales, and other routine expenses (maintenance and repairs, supplies, bank charges, uniforms, and other services).

• Restaurant-level EBITDA excludes multi-unit supervision costs typically charged against Restaurant costs for company-owned Checkers Restaurants.

• The Company Checkers Restaurant leases its location and paid $71,473 in annual rent (not including property taxes or insurance). Rental amounts can vary significantly due to local market factors.

• “EBITDA” means earnings before interest, taxes, depreciation, and amortization.

Part 3 – Return on Investment and Cash-on-Cash Return on Investment for New Company Checkers Restaurant

• The following tables comprise the return on investment for the New Company Checkers Restaurant.

• Total Cost includes amounts paid for New Freestanding and Conversion Restaurants only.

• Return on Investment is a measure of the Restaurant’s EBITDA during the first 52-week period of operations, including an assumed royalty rate of 4% of Net Sales.

• The Cash-on-Cash Return on Investment assumes 80% of the Total Cost was borrowed at a rate of 6% over a 10-year term.

• Net Sales During First 52-Week Period of Operations:  $1,073,970
• Total Cost:  $1,277,738
• Return on Investment:  12.5%
• Cash-on-Cash Return on Investment:  40.4%

Part 4 – Statement of Average and Median Net Sales of Rally’s Restaurants

Table A – All Rally’s Restaurants

• Table A comprises Net Sales information for the 127 company-owned Rally’s Restaurants and the 142 franchised Rally’s Restaurants that were open and operating for at least 355 days during the 2020 Fiscal Year.

Company-Owned

• Average Net Sales 2020 Fiscal Year:  $1,008,047
• Number of Restaurants:  127
• % Attaining or Exceeding Average:  57 or 45%
• Median Net Sales 2020 Fiscal Year:  $987,241
• Low Net Sales 2020 Fiscal Year:  $619,926
• High Net Sales 2020 Fiscal Year:  $2,057,476

Franchised

• Average Net Sales 2020 Fiscal Year:  $1,146,263
• Number of Restaurants:  142
• % Attaining or Exceeding Average:  64 or 45%
• Median Net Sales 2020 Fiscal Year:  $1,117,606
• Low Net Sales 2020 Fiscal Year:  $274,931
• High Net Sales 2020 Fiscal Year:  $3,141,920

Table B – First Year of Operations for New Rally’s Restaurants

• Table B comprises Net Sales information during the first 52-week period of operations for the 3 company-owned Rally’s Restaurants and the 27 franchised Rally’s Restaurants that opened between January 2016 and December 2019 (each, a “New Rally’s Restaurant”).

Company-Owned

• Average Net Sales During First 52-Week Period of Operations:  $1,052,014
• Number of Restaurants:  3
• % Attaining or Exceeding Average:  1 or 33%
• Median Net Sales During First 52-Week Period of Operations:  $1,004,435
• Low Net Sales During First 52-Week Period of Operations:  $902,109
• High Net Sales During First 52-Week Period of Operations:  $1,249,499

Franchised

• Average Net Sales During First 52-Week Period of Operations:  $1,068,855
• Number of Restaurants:  27
• % Attaining or Exceeding Average:  15 or 56%
• Median Net Sales During First 52-Week Period of Operations:  $1,201,737
• Low Net Sales During First 52-Week Period of Operations:  $218,786
• High Net Sales During First 52-Week Period of Operations:  $1,728,807

Part 5 – Statement of Average and Median Gross Margin (New Company Rally’s Restaurants)

• The Statement of Gross Margin for New Company Rally’s Restaurants consists of the reported Net Sales, food and paper costs, and labor and benefit costs for 3 company-owned New Rally’s Restaurants that were open and operating during the entire 2020 Fiscal Year (“New Company Rally’s Restaurants”).

• The New Company Rally’s Restaurants opened between January 2016 and December 2019 and the figures included below represent their operating expenses and Net Sales during each of their first 12 months of operation for each of the New Company Rally’s Restaurants.

Average for New Restaurants

• Net Sales:  $1,052,014 (100.0%)
• Food and Paper Costs:  $316,964 (30.1%)
• Labor and Benefit Costs:  $336,462 (32.0%)
• Gross Margin:  $398,587 (37.9%)

Median for New Restaurants

• Net Sales:  $1,004,435
• Food and Paper Costs:  $309,835
• Labor and Benefit Costs:  $341,029
• Gross Margin:  $353,571

• Restaurant-level EBITDA for the Restaurants reported above averaged 13.2% of sales, or $138,605, after royalties, occupancy, and other operating costs of $259,982.

• Each of the presented new Rally’s Restaurants leases the location for their Rally’s Restaurant and the average annual rent was $44,193 and the median annual rent was $47,946.

Part 6 – Average and Median Returns and Cash-on-Cash Returns on Investment of New Company Rally’s Restaurants

• The following tables comprise the average and median returns on investment for the New Company Rally’s Restaurants.

• Average Net Sales During First 52-Week Period of Operations:  $1,052,014
• Average Total Cost:  $1,251,573
• Average Return on Investment:  11.1%
• Average Cash-on-Cash Return on Investment:  35.9%
• % Attaining or Exceeding Average:  33%

• Median Net Sales During First 52-Week Period of Operations:  $1,004,435
• Median Total Cost:  $1,216,042
• Median Return on Investment:  8.5%
• Median Cash-on-Cash Return on Investment:  27.6%

Part 7 – First Year of Operations for Company-Owned New Checkers and Rally’s Restaurants

• The Statement of Gross Margin for New Company Checkers and Rally’s Restaurants consists of the reported Net Sales, food and paper costs, and labor and benefit costs for 4 company-owned New Checkers and Rally’s Restaurants that were open and operating during the entire 2020 Fiscal Year (“New Company Checkers and Rally’s Restaurants”).

• The New Company Checkers and Rally’s Restaurants opened between January 2016 and December 2019 and the figures included below represent their operating expenses and Net Sales during each of their first 12 months of operation for each of the New Company Checkers and Rally’s Restaurants.

Average for New Restaurants

• Net Sales:  $1,057,503 (100.0%)
• Food and Paper Costs:  $312,269 (29.5%)
• Labor and Benefit Costs:  $332,824 (31.5%)
• Gross Margin:  $412,411 (39.0%)

Median for New Restaurants

• Net Sales:  $1,004,435
• Food and Paper Costs:  $298,361
• Labor and Benefit Costs:  $322,060
• Gross Margin:  $453,549

• Restaurant-level EBITDA for the Restaurants reported above averaged 13.6% of sales or $143,836 after royalties, and other operating costs of $268,575. The median Restaurant level EBITDA for the New Company Checkers and Rally’s Restaurants reported above was 13.0% of sales or $130,154 after royalties, and other operating costs of $263,194.

• Each of the presented new Checkers and Rally’s Restaurants lease the location for their Checkers and Rally’s Restaurant and the average annual rent was $51,060 and the median annual rent was $57,828. Rental amounts can vary significantly due to local market factors.

Part 8 – Average and Median Returns and Cash-on-Cash Returns on Investment of New Checkers and Rally’s Company-Owned Restaurants

• The following tables comprise the average and median returns on investment for the New Company Checkers and Rally’s Restaurants.

• Average Net Sales During First 52-Week Period of Operations:  $1,057,503
• Average Total Cost:  $1,258,025
• Average Return on Investment:  13.6%
• Average Cash-on-Cash Return on Investment:  37.0%
• % Attaining or Exceeding Average:  50%

• Median Net Sales During First 52-Week Period of Operations:  $1,004,435
• Median Total Cost:  $1,424,701
• Median Return on Investment:  9.1%
• Median Cash-on-Cash Return on Investment:  29.6%

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