YOU ARE HERE: LAT HomeCollections

'Another Crummy Quarter,' Analyst Says : Karcher Enterprises to Drop Coffee Shop Goal

April 02, 1985|BRUCE HOROVITZ | Times Staff Writer

Carl Karcher Enterprises is giving up on the company's costly two-year-old corporate goal to become the so-called coffee shop of fast food restaurants.

Senior executives have decided to kill the struggling dinner platter program at Carl's Jr. restaurants and may also ax the ballyhooed one-third pound burger as the Anaheim company prepares to announce its worst year since going public in 1981.

In trying to fill the niche between a fast food outlet and full-fledged coffee shop, the 44-year-old company has painfully discovered that no such niche exists. Worse yet, it has confused its customers.

"Carl Karcher stumbled through an entire year and has kept stumbling," said Ward P. Lindenmayer, vice president at the San Francisco-based office of S.G. Warburg, Rowe & Pitman Inc.

Despite Karcher's efforts to prove otherwise, fast food customers are not eager to pay a premium price to get their dinners brought to their tables, or to eat fast food with flatware off ceramic plates. So over the next few months, the company with more than 400 restaurants in five states, will continue to trim its menu, dump unsuccessful programs, cut costs and try to bring back lost customers.

Analysts contend that by eliminating the dinner program, the company will be able to shrink its nationwide work force of 4,000. But Karcher, which in January handed pink slips to 35 of its 500 corporate employees as part of a company restructuring, said more layoffs are not in the company's current plans.

For the third quarter ended Nov. 2, the company reported an earnings drop of 48% to $1.43 million, from $2.71 million a year earlier. Sales were ahead to $77.3 million from $71.9 million the prior year. For the nine months net income rose slightly to $10.3 million from $9.4 million a year earlier. Sales increased to $256.1 million from $223.3 million.

Although the company will make no projections for its fourth quarter, which ended Jan. 27, 1985, company officials candidly see little improvement from the quarter before. The quarterly and year-end results are expected to be released within the next few weeks.

Said Lindenmayer, the analyst, "It's going to be another crummy quarter." Karcher stock closed at just over $17 a share Monday in over-the-counter trading. In October, 1983, the stock peaked at $45 a share.

The company began pulling the dinners out of selected markets about three months ago. Although still available at some locations, these chicken, fish and steak dinners will eventually be scrapped. The $3.79 dinners have been served on platters that require dish washing. When the company introduced them a year ago, it hoped to lure more evening traffic into its restaurants. But the costly program forced the company to bump up prices on its other menu items, and instead of attracting more business, the expanded menu--with its higher prices--scared customers away.

"The dinner program priced its customers right out the door and across the street to McDonald's," said Lindenmayer, the analyst. "It has been a disaster," he said. In the Southern California fast food industry, Carl's Jr. is second only to McDonald's in sales.

Barry J. Brummett, vice president of food services at Irvine-based Taco Bell, said that Carl's Jr.'s dinner program "got too far away from what fast food is all about." Last month, Taco Bell introduced three combination Mexican dinner platters at its 2,000 restaurants nationwide. But the platters are served on throw-away plastic plates and cost under $3, so the consumer clearly views them as fast food. He said that Taco Bell spent "hundreds of thousands" of dollars over the past year researching the product and testing it in three markets.

To their credit, Karcher executives recognized early on that the dinner program was a bust and decided to quickly cut their losses. And within the past month, the company has begun testing lower prices at a three Southland locations. Early indications show strong improvements in business, the company spokesman said.

Still, Karcher had already taken a number of costly actions over the past year, such as installing dishwashers at its stores to wash the dinner plates and flatware. With the dinner program a flop, the company is redirecting the use of theses appliances to a more successful breakfast program that accounts for upwards of 10% of its annual business.

'Sales Very Good'

But the assistant manager at one Carl's Jr. said dinner platters sold fine at his location. "Sales were very good. I really don't know why they took them out," said Lewis Naki, assistant manager at the Carl's Jr. on North Harbor Boulevard in Anaheim. He also said that the one-third pound burgers are selling "very, very well" at his store.

The company, however, has tentative plans to drop the one-third pound burger as well. Introduced just six months ago, the one-third pounder has also failed to garner an audience, a senior company spokesman said.

Critics contend that the one-third pounder was basically Carl's Jr.'s knee-jerk reaction to the rush of gourmet hamburger products offered by upscale competitors. Although the one-third pound burgers are still sold at most Carl's Jr. locations, "sales have not been where we had hoped they would be," the company spokesman said.

Analysts say that Karcher simply tried to do too much too quickly. Besides introducing the dinner platters and one-third pound hamburgers last year, the company also undertook its first franchising program.

Although the franchising program has mostly kept to schedule, that schedule has been painfully slow. The company opened six franchises in California over the past year. Within the next year, it hopes to open its first out-of-state franchises in the Dallas-Fort Worth area.

Los Angeles Times Articles