Finding His Blue Ocean
When the other burger chains were seeking ways to appeal to families, Andrew Puzder positioned stodgy Hardee’s and its fraternal twin Carl’s Jr. to attract heavy fast-feeders—young men. And what sells to this group? Hot chicks. But while following the new conventional wisdom of not fishing in the same waters as everyone else—blue oceans as opposed to the red waters where all the competition was feeding—it was a bit harder to sell sex to the franchisees.
“Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant,” a 2005 best-seller, talks about zigging when everyone else is zagging, which is what Hardee’s has been attempting with their racy ads. This beer-industry approach to marketing, however, is being emulated by other fast-food chains which means CKE may have to find a new blue ocean soon.
Even the invitation was cheeky. “McDonald’s may call Chicago home,” it read, “but Carl’s Jr. and Hardee’s are visiting the Windy City to ensure people know what the ORIGINAL premium-quality Angus burger tastes like.”
The Chicago business, food and franchise press was invited to the trendy Redhead Piano Bar in mid-August for a chance to sample those Angus burgers, enjoy an open bar and chat with Andrew Puzder, 59, CEO of CKE Restaurants, parent of both Carl’s Jr. and Hardee’s. Since the nearest CKE restaurant is 40 miles away, in Portage, Indiana, CKE chefs drove a portable kitchen all the way from St. Louis.
But when we arrived, no one was eating burgers or drinking free Coronas. Reporters gathered around a laptop, watching model and “Top Chef” hostess Padma Lakshmi eat a Carl’s Jr. Western Bacon Cheeseburger while wearing a revealing dress and sitting splay-legged on a staircase. When some of the burger’s sauce dripped onto her hand, Padma licked it off. A couple of young male reporters sighed. Puzder, standing in the background, grinned.
CKE, based in Carpinteria, California—with 1,205 Carl’s Jr. restaurants, mostly in California and the Southwest, and 1,915 Hardee’s in the South and Midwest—is the nation’s sixth largest burger chain, but it is No. 1 in sultry ads. Besides Padma’s TV commercial, the writers watched one starring Paris Hilton in a car wash, rubbing a few soapsuds onto a Bentley and lots more onto her bikini-clad body, then biting into a massive burger. In another, reality TV star Audrina Patridge wore a gold lamé bikini as she stretched out on a beach and devoured a Carl’s Jr. Teriyaki Burger.
The ad campaign, dubbed “hot chicks eating burgers,” is the last thing you’d expect from a restaurant chain launched by an arch conservative member of the John Birch Society and now run by Puzder, an attorney who admits to conservative leanings himself. But the television ads and their tremendous afterlife on YouTube are the ravishing force behind CKE’s success. “Some of our franchisees, especially those in the Deep South, are open about their displeasure with our ads,” said Puzder later in a phone interview. “But they’re the first ones slapping my back when sales are up.”
Same-store sales had been up for several years in a row, although they dropped slightly for both brands this summer.
Carl’s Jr. was started in 1941 by Carl and Margaret Karcher, who borrowed $311 against their Plymouth sedan and pulled another $15 from Margaret’s purse to buy a hot dog stand in Los Angeles. Carl Karcher (who died in 2008 at age 90) expanded to more carts, then, after a stint in the Army, opened his first restaurant, Carl’s Drive-in Barbecue, in Anaheim, California in 1945. When he opened two more in 1956, they were smaller, so he called them Carl’s Jr. In 1982, Karcher and his franchisees operated 300 Carl’s Jr. locations and the chain went public, with the symbol CKR and a smiling star as a mascot.
The couple also flourished and raised 12 children. Karcher, a devout Catholic, supported conservative causes, such as the John Birch Society and a California proposition to block gays and lesbians from working at public schools. It failed, but Carl’s Jr. restaurants were targets for feminist and gay protests during the turbulent ‘70s.
In the mid-’80s, Karcher’s luck changed. He launched three more restaurant concepts, but they all bombed; the Securities and Exchange Commission accused Karcher and other family members of insider trading and a disgruntled investor filed a lawsuit against him in Missouri. Puzder, who had been a lawyer in St. Louis since graduating from Washington University Law School, was assigned by his firm to represent Karcher in that case.
Andrew Puzder began as personal attorney to CKE Restaurants founder Carl Karcher. Today, he runs the company.
Puzder was soon Karcher’s personal attorney and flew to California once a month to represent him in other matters. “In the spring of 1991, Carl thought he was worth $150 million, but I’d looked into his affairs and realized he was close to bankruptcy. When I went to his house to tell him, he said, ‘You’d better move out here and get me out of trouble,’” Puzder said. “It was a big risk, leaving an established practice in St. Louis, but I liked Carl a lot and his advisers were not advising him well.”
To get out of trouble, Karcher had to sell off blocks of his company’s stock. One of the buyers was another Puzder client, investor William Foley, CEO of Fidelity National Financial, a title insurance company, then based in Irvine, California. Despite his diminishing stake, Karcher was still chairman of the board of CKE and in 1992, he proposed that CKE join another chain, Green Burrito, in a co-branding deal. According to published reports, the arrangement also included a $6 million personal loan from Green Burrito to Karcher. The deal angered other CKE company directors, who turned it down and voted their founder off the board.
In 1993, Foley became CKE’s majority shareholder and, as the new board chairman, made a deal with Green Burrito and reinstated Karcher as chairman emeritus. Puzder became CKE’s general counsel. Sales were up at Carl’s Jr., CKR stock was selling at about $40—and in 1997 Foley bought the much-larger Hardee’s burger chain.
Things did not go well. Back then, Hardee’s had about 3,000 units and many of them were losing money. “Hardee’s was the first burger place in a little town,” Puzder said. “When McDonald’s or Burger King moved in, they started selling fried chicken, and when KFC arrived, they expanded to roast beef. Except for biscuits at breakfast, Hardee’s franchisees were Jacks of all trades and masters of none.”
CKR stock fell to $2 (it’s now back up to about $10) and shareholders were angry when Puzder arrived at CKE’s annual meeting in 2000. “I was dressed as the corporate counsel, in my pin-striped suit, and I was thinking of what joke I was going to tell during the meeting’s ballot-counting,” Puzder recalled, “when Bill Foley walked up to me and said, ‘The board and I have decided you’re going to be Hardee’s CEO.’ ‘Let’s see if the cocky lawyer can fix things’ was my first thought. My second was of my wife, Dee, and our three young boys, who were then 6, 4 and 1. But she encouraged me, so I said yes.”
Two weeks later Puzder was in Hardee’s headquarters in Rocky Mount, North Carolina, firing people, including the chain’s head of marketing. “The previous CEO had started as a fry cook,” Puzder said, “so as CEO he paid more attention to the accounting, legal and human resources departments. I knew that stuff, so I started visiting the restaurants.”
Puzder found dirty stores, complicated menus and counter clerks who just stared at him. “Obviously, the counter workers needed to say something, so we wrote a script, starting with, ‘Hello, welcome to Hardee’s. May I help you?’ then wrote SMILE in red, and taped it to every POS machine. Turnover in fast food is so high, within a few months every worker thought the script had been there forever.”
To find a new head of marketing, Puzder called a Coca-Cola representative and asked him, “Where is the guy who brought Jack back to Jack in the Box (after the E. coli outbreak of 1993)? He knows how to deal with big problems.” Puzder found the guy, Brad Haley, at AFC in Atlanta and asked if he’d want to be vice president of marketing for Hardee’s. Haley said his wife didn’t want to move to Rocky Mount, so Puzder said he planned to move Hardee’s headquarters to St. Louis, which was more central to its trade area. “Brad said his wife only wanted to move back to California. If I’d known all this, I would have talked to his wife directly,” Puzder said, laughing.
Puzder, Haley and their families now live in the Santa Barbara area, near CKE headquarters, and the men fly to St. Louis twice a month. It’s fortunate neither family wanted to live in the Midwest, because three months after taking over Hardee’s, Tom Thompson, the former franchisee who had been CEO of Carl’s Jr., suddenly resigned, and Puzder became CEO of the entire CKE company.
At first, Puzder concentrated on operations. “I worked in a Hardee’s store, where 45 percent of the business was at breakfast. I was tired by 10 a.m., when I had to start breading chicken and slicing roast beef. At the end of the day, I was exhausted. At that point, Hardee’s did $716,000 in average unit sales and Carl’s Jr. did almost $1.5 million. I figured if I worked in a Carl’s Jr., I’d almost die. Instead, I spent the day feeding chicken and burgers onto a conveyor belt and taking condiments to the tables,” Puzder said. “The next thing I did was take 40 items off the Hardee’s menu.”
Since 1995, Carl’s Jr. had used the edgy Mendelsohn/Zien ad agency to increase sales. When Puzder and Haley asked the firm for help with Hardee’s, “they suggested replacing all the buildings, serving only large hamburgers and re-naming the place Thickburger. Except for the name change and tearing down the buildings, I liked their ideas,” Puzder said.
Carl’s Jr.’s racy ads feature hot starlets like Paris Hilton and Padma Lakshmi “enthusiastically” devouring burgers.
But when Hardee’s tested Thickburgers in Knoxville, “sales dropped like a rock.” Back then, Hardee’s demographics were as varied as its menus. Only 7 percent of Hardee’s customers were traditional, heavy fast-food eaters—hungry young guys, age 18 to 34. To target more of them, Haley said, “Mendelson/Zien said we had to market both brands like the beer companies, with ads featuring edgy humor and attractive women.” McDonald’s and Burger King owned the children’s market, but no one had made eating a burger “a sexy, adult, cool thing to do,” he said.
For some, racy ads featuring scantily clad hot chicks like Paris Hilton were way too hot. Published reports say that Karcher was dismayed and several of Hardee’s original franchisees were also upset. Like Karcher, Puzder is a Roman Catholic with a large family (he has three adult children—a physicist, an attorney and a fashion designer—from his first marriage), but his life was not always so conservative.
Puzder, the oldest of five children, grew up outside Cleveland and paid his way through his first two years at Kent State by playing the guitar. But in May 1970, during a campus uprising, Ohio National Guardsmen killed four Kent State students and wounded nine more. “I spent the next three years attending concerts and marching on Washington,” Puzder said. He finished college in 1975, with a degree from Cleveland State, then attended law school. And he still plays the guitar. Lee Staak, an Iowa Hardee’s franchisee, said that during one franchise convention, while Jimmy Messina was playing, “Andy grabbed a guitar, got up on stage and played along.”
Puzder said he has “no qualms” about the hot chicks ads. “McDonald’s has 14,000 restaurants in the U.S. and we compete directly with them. We have to do something to grab the attention of young, hungry guys. I knew Carl didn’t like the ads, but he never came to me and said, ‘Do not run this ad.’”
Brian Kelley, a San Diego-based franchisee with 87 Hardee’s said, “Customers in the South may be more sensitive to cutting-edge advertising. We’re in California, and we’re desensitized to it. It even helps us attract employees, because people want to be part of our new image.”
Puzder also has no qualms about CKE food. In an online survey of the 272 fast food items highest in calories, CKE has five items in the top 15, including No. 3, Carl’s Double Six Dollar Burger at 1,520 calories and No. 4, Hardee’s Monster Thickburger at 1,420 calories. “We do have healthy products,” Puzder said. “Nobody buys them. It’s not my responsibility to tell people what to eat.”
At first, old-time franchisees had trouble with Puzder’s straightforward style. “I’ll admit I was nervous and skeptical when I learned that an attorney would be running our company,” said Dan Ponder, a franchisee with 23 Hardee’s in Georgia, Alabama and Florida. “But Andy jumped in and visited restaurants to understand what we were doing, both good and bad. He approached our business from an analytical standpoint and I became an early convert.” Since Puzder took over, Carl’s Jr. average unit volumes have stayed at about $1.5 million, but Hardee’s have increased by 30 percent, to more than $1 million. Many CKE franchisees have opened more stores and CKE is expanding both brands overseas, with 325 franchised restaurants in 14 countries. By 2014, Puzder hopes to have 300 more franchised restaurants in the U.S., plus 70 more company stores and 50 more international locations. “It’s my desire to grow as fast as we reasonably can,” he said.
To accomplish that, of course, CKE will need even more provocative ads. A summer promotion for Hardee’s French Dip Thickburgers (a patty topped with a slice of roast beef and Swiss cheese, with a cup of au jus for dipping) sent four French maids in tiny black uniforms riding Segways around 12 U.S. cities. The tag line: “These beauties may not be the kind to keep things perfectly clean, but they’ll definitely cook up some appetites.”
Just before press time, a commercial for a Big Carl Double Burger mocked a McDonald’s Big Mac’s thinner patties. “I’m thinking of getting my patties enlarged,” the Big Mac said. “Do you think it will make my buns look smaller?”
Lyn Woodward, Mendelsohn/Zien’s account executive for Hardee’s, said, “We do have more fun stuff coming up,” that she can’t yet reveal.
Several members of Karcher’s large family are now CKE franchisees, including grandson Jason LeVecke, CEO of LeVecke & Company, with 60 Carl’s Jr. and 60 Hardee’s, in Guadalupe, Arizona. “My grandfather didn’t like the ads,” LeVecke said. “With edgy advertising, there’s a delicate balance between making sure you’re getting attention and not going over the line. But at the end of the day, I think he’d be very happy to see his star growing nationally.”