Steven Greenhut: Carl's Jr. chewed up by California

[The Straight Story]

Steven Greenhut: Carl's Jr. chewed up by California
....

Indeed, CKE Restaurants, parent of Carl's Jr., is likely to move its headquarters from Carpinteria, near Ventura, to Texas and is undergoing a rapid expansion of restaurants in the Lone Star State. Right before the budget circus got going Wednesday, CKE CEO Andrew Puzder spoke at the California Chamber of Commerce, blocks from the Capitol dome. Like most of us, Puzder loves California and has no interest in leaving it, but he told harrowing tales about doing business in a state that has gone from an entrepreneurial heaven to a bureaucratic nightmare.

"It costs us $250,000 more to build one California restaurant than in Texas," he said. "And once it is opened, we're not allowed to run it." This explains why Carl's is opening 300 restaurants in Texas and only maintaining its presence in California. Texas has lower taxes than California, but the reason for the shift has more to do with regulation and with the attitude of the respective governments.

Puzder complained about the permitting process here, where it takes eight months to two years to open a new restaurant compared to an average of 1 1/2 months in Texas. In California, restaurants have to provide new curb cuts, new traffic lights, you name it. The company must endure so many requirements and must submit to so many inspections that it becomes excessively costly – and the bureaucrats are in charge of the project.

Once the restaurant is open, Puzder said, the store's general managers are not allowed to run the business as if they own it. That's the key to the company's customer service approach – allowing general managers to do whatever it takes to make customers happy. But California's inflexible, union-designed work rules, for instance, classify general managers as regular employees. They must be paid overtime for any work beyond an eight-hour day. They must take mandated breaks at specified times.



http://articles.ocregister.com/2011-03-18/news/29147158_1_california-restaurant-cke-restaurants-new-restaurant

[rfranklin]

1. Do those managers get to take as much as they want out of the till?

Like other owners do? I will bet not.

[JHB]

2. I love how CEOs always complain about strict health, labor, and safety rules...

...about how "inflexible" they are (supposedly. seems to me like they get bent all the time). As if those weren't there because businessmen and corporations, when given "flexibility", inevitably use it to squeeze their employees and cheat their customers.

Bad practice drives out the good, because it's more profitable. The holy Invisible Hand doesn't "correct" this without people getting seriously injured or killed (and even then, it's not the market doing the correction).

[Richardo]

4. Thanks, JHB - you echo two points I always try to make...

...except yours are a lot more succinct :patriot:

Also, note how CKE would rather the socialist public sector pay for the curb cuts, etc; while at the same time bemoaning tax rates.

[JHB]

11. I know. Curb cuts?

They always include curb cuts when they're complaining about costs. Compared to the cost of building on or redeveloping a location? Am I missing something?

And thanks for the thanks.

if you want more bon mots, next time someone labels a liberal proposal "social engineering", ask them if they're opposed to corporations having limited liability.
(it's there to encourage risk taking in ventures. How is that encouragement not "social engineering"?)

[leveymg]

3. Alleged over-regulation hasn't slowed down expansion of McDs, not at all.

I think this is a case where some corporation is looking to pressure a new Administration, and just doesn't want to play by the same rules as their competitors.

BTW: McDonald's, like Wal*Mart, is a major part of what's wrong with America, as far as I'm concerned.

[KharmaTrain]

5. I've Seen This Movie Before...

This line is what stuck out at me (and I'm sure others):

for instance, classify general managers as regular employees. They must be paid overtime for any work beyond an eight-hour day. They must take mandated breaks at specified times.

The translation: since I offer you a couple more dollars another than the "grunts" and give you a title then I expect you to work whatever hours it takes. I had an employer who loved to make people "management"...make up a title and a salary so he could work them as hard as he could. When I first starting working for the company I was told that if I got the job done in 30 rather than 40 hours then so be it, but if it took 50, then so be it as well. In time I found myself skipping lunches and then staying late to make sure work was done...50 turned to 60 hours. All the time I was told this is what was "expected" of managers. But then everyone at that company was a manager or became one. Fortunately that practice ended when a bunch of us went to the state department of labor and had the company investigated and fined.

Just cause someone is a "manager" means little. Few have real "power of the purse" and are limited in what they can actually do. But they make convenient scapegoats. As that infamous manager once told me..."your management ends when it isn't what I like".

[CanonRay]

6. and that's why Texas is strip mall heaven

with a fast food restaurant on every block. Or so it seems.

[MindPilot]

7. Such BS! Look, I have an hourly job in California.

And yes, I am supposed to get overtime after eight hours, two fifteen minute breaks and at least 30 minutes for lunch. But state doesn't dictate when those breaks should be. The state doesn't interfere with day-to-day operations. And generally it's the city that issues the building permits, not the state.

I think it's just that there are more of the 17-34 hungry guy market in Texas than California. Just watch a couple of their commercials and it's pretty evident who there target demo is.

[eppur_se_muova]

8. Remind me to avoid Carl's Jr. ...

if they can't play fair with their employees, ain't gonna get my $$$.

[Starry Messenger]

9. Anti-union hit-piece by the author of "Plunder: How Public Employee Unions are Raiding Treasuries,

: How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation. No agenda there. :eyes:

[n2doc]

10. "Serfdom, brought to you by Carl's Jr."

Idiocracy had the right company, all right.

[fishwax]

12. the horror of having to treat your employees remotely fairly

:eyes:

[CreekDog]

13. so you would prefer California be more like Texas than California?

:shrug:

[CreekDog]

14. Lots of links to this opinion column on conservative blogs and discussion boards today n/t

[The Straight Story]

16. Hmm wouldn't know, don't waste my time with them :) (nt)

[CreekDog]

19. then where do you get all the anti-government, anti smoking regulation bogeyman columns?

you find multiple ones each and every day.

it's just not credible you are reading all this stuff and not coming across any of it on conservative blogs.

for a long time i followed some Christian blogs and lots of their links took me to conservative blogs, columnists and articles. certain topics that will happen.

[The Straight Story]

21. It is called google news search - type in bans, proposes, legislation

You should try it sometime and spend less time hanging out on those rw sites.

[CreekDog]

22. i do oppo research, i'm not afraid of them

it's always fascinating to me to see what the latest right wing meme is and how soon and in what form it will appear on DU. and i hate to be a step behind on that.

and i think you can agree with me that my posting at DU is pretty much always in strong disagreement with whatever right wing meme is out there at any given time --no?

:hi:

[Starry Messenger]

17. The Orange County Register is a libertarian paper.

The author writes for Reason, the libertarian journal, and also runs a RW think tank.

Oddly, Carl's Jr. does very well in CA, but I guess it is never enough. Gotta gouge anyway they can:

http://www.thedailysound.com/03242010-cke-earnings

"Carl's Jr.'s parent's 4Q profits sizzle

By BY RAY ESTRADA

The Carpinteria-based parent of the Carl's Jr. and Hardee's fast-food chains posted a six-fold jump in quarterly profit that beat market expectations, aided by a $9.9 million tax benefit and a drop in operating costs.

CKE Restaurants operating costs during the fourth quarter that ended Jan. 31 dropped 4 percent to $300.3 million.

The company earned $15.4 million, or 28 cents a share during the quarter, up from $2.6 million, or 5 cents a share, a year earlier. Excluding items, CKE earned 30 cents a share.

<snip>

Puzder said earlier he believes many other businesses are fleeing California, while CKE is expanding big time into Texas, where labor laws don’t restrict companies as they do in the Golden State.

He said CKE has been able to build more restaurants at about 10 percent less than the previous year because construction companies are starving for work and willing to lower their prices."

Capitalist logic. No one ever thinks about who is supposed to be buying the lunches at Carl's Jr. with lowered wages from low-balled construction bids.

[CreekDog]

20. Isn't the owner of Carl's Jr. a big supporter of right-wing causes?

:shrug:

[Starry Messenger]

23. Seems to be.

I would say undercutting labor is a right wing cause in itself. It wouldn't surprise me if he had other organizational ties though.

Here's another article from last year about Carl's Jr, failing to capture profits in the recession:

http://www.thebigmoney.com/blogs/daily-bread/2010/02/26/after-years-failure-hardeescarls-jr-owner-taken-private?page=full

""How hard can it be to sell hamburgers in a recession?" asks Michael Corkery of the Wall Street Journal's Deal Journal blog.

It's a good question. McDonald's (MCD) has generally done quite well for the duration of the downturn. It has focused on value while continuing to plan for better times by offering higher-end items like gourmet coffee and pricey Angus burgers. Meanwhile, Andrew Puzder, chief of CKE Restaurants (CKE), which owns Hardee's and Carl's Jr., has obstinately refused to make his fast food a value play—concentrating instead on creating advertisements based on bad dirty jokes. And sales have plummeted as a result, quarter after quarter. Puzder at one point in part blamed "socialism" for his troubles. Now, CKE is being taken private in a deal with $928 million. The buyer is Thomas Lee Partners, the private-equity firm that was part of a group that took Dunkin' Donuts private in 2005.

"Thomas Lee Partners apparently thinks it can do a better job than the current managers of Hardee’s and Carl Jr.’s," Corkery writes. Yeah, well, so could I—and I've never sold more than one burger at a time.

Thomas Lee reportedly said it will keep current managers, presumably including Puzder, in their jobs. But expect the private-equity firm to demand big changes. And don't be surprised if Puzder doesn't stay long.

<snip>

So now, expect cost cuts, perhaps massive ones, especially cuts in labor. And expect those cuts to be even deeper than they otherwise might have been, because Thomas Lee will almost certainly lower prices to increase foot traffic, and margins are already thin and getting thinner."


They are owned by a private-equity firm that needs to expand the profit margin and make up for its investment. All the eyewash about CA being a hostile business environment is RW red herrings.

[CreekDog]

25. Can't explain why, but Carl's seems to be touting it's super sized, horribly unhealthy foods

while McDonald's is at least trying to offer some healthier alternatives.

i'll stop at McD's to pick up a salad on the way home (when i'm hungry, but lacking time), but I never stop to pick up burgers/fries and for that reason, don't stop at Carl's or BK (pretty yucky actually). Don't get me wrong, I like their food, but unless I've starved myself all day, there's no way I'm adding a burger and fries to my diet (especially unappetizing ones like Carl's). at worst, if i really, really crave something like that, I'll go to an actual burger place. almost never Carl's.

[Starry Messenger]

27. Puzder mentioned in a few articles

that it is part of their strategy to capture a market share that McDonald's doesn't go after. http://www.burgerbusiness.com/?p=1722

"CKE: New Burgers and Snacks But No 99-Cent Marketing

Carl’s Jr. and Hardee’s are testing lower-price snack-menu items, but don’t look for the chains to join the 99-cent bandwagon, says CKE Restaurants CEO Andrew Puzder.

Presenting today at Oppenheimer & Co.’s 9th Annual Consumer, Gaming, Lodging & Leisure Conference in Boston, Puzder said CKE’s two chains will continue to focus marketing on large, premium-price burgers (such as the new Teriyaki Burger at right) and to target that marketing at “young hungry guys” who make up its core audience. He defended the chains’ “hot chicks eating burgers” TV strategy as a way to grab attention and “break through the clutter. We can’t be McDonald’s. McDonald’s spends $800 million ; we spend $120 million,” he said.
Andrew Puzder

<snip>

In the most recent reporting period, ended June 15, Carl’s Jr. same-store sales were down 7.1% vs. one year ago; Hardee’s sales were down -2.7%. “We’re still selling as many premium burgers but we are not selling as many combos,” Puzder said. “We’re seeing customers order a $6 Thickburger and a glass of water.”

CKE will rebuild sales with unique, premium-price products, he said, not with discounts. “We will not spend ad dollars trying to attract 99-cent customers,” Puzder added. “We have great 99-cent products but we don’t promote them, which is why we have higher margins than our competition.” Short-term planning trades brand equity for small sales gains, he said, and CKE won’t do it. Carl’s Jr. and Hardee’s are testing new lower priced snack items. But the chains will avoid couponing. “We don’t want to be seen as a place where you can get cheap, bad food for very little money,” he said."



Another article had him quoted as saying that they have healthy items for sale, but no one orders them so they don't advertise them. That seems backwards to me, but I'm not a CEO. ;) Evidently their strategy backfired though, since their target market (guys 18-34) don't have money to spend, since many are unemployed or brown-bagging to save money. There are so many better options for burgers in the Bay Area alone, I don't see how a chain like Carl's thought it was going to capture the "boutique" burger eater with fast-food.

That's probably more than you wanted to know, but I still had the link up in my browser so I thought I'd post it. At any rate, I'd say that the cost of doing business in CA seems to be the least of their worries.

[CreekDog]

28. Yeah, i don't know why I'd go to Carl's for a $6 burger when for $4 I could go to Nation's

and have something tastier and fresher.

and it's even clearer in San Bruno where you could get a $6 burger at Carl's or within the same shopping center, go to Big Mouth Burger and get something better for $7.

[SoCalDem]

15. Synopsis:

In CA, there are rules , and we don't want no stinking rules..

We want to be able to pay crappy wages, plunk down "stores" (what most fast food bosses call their places..not restaurants) wherever we like with no regard to traffic flow, and we sure don't want those pesky food inspectors nosing around....oh ..and we don't want to pay taxes.

Texas can have 'em..

[Xithras]

18. Ignore the naysayers. I ran a business in Ca. It's a royal pain in the #$$

Most people who haven't owned businesses genuinely have no clue how stupid this state has become with its regulations. Apply, inspect, deny, inspect, approve, now visit the next office. It isn't TAXES, but all of the silly regulations and hoops you have to jump through to get anything done. Because NONE of the regulatory agencies coordinate with each other, even the simplest processes can take months. Like when we were informed that the toilet in our office bathroom didn't meet ADA requirements. A contractor was hired, who pulled a permit for the toilet, which triggered an inspection, which triggered a mandatory replacement of our buildings main inlet to add a meter, which then required a building water use audit, which eventually mandated that we update our exterior sprinklers, which required another permit, landscaping plans, and two more inspections. In the end, replacing a simple toilet required four months of work, permitting, and inspections, and about $15,000 worth of upgrades to the building. It's just too much.

There's another example happening right now in the Sierra foothills. Company bought a bit of land out in the middle of nowhere, far from any neighbors, and wants to open a basic rock quarry. It's in an area where it will have little environmental impact, and neither the state or private environmental agencies have any problem with it. Given that lack of opposition, and the dozens of jobs it will create, and the fact that the nearest neighbors are miles away, you'd think that a project of this sort would be encouraged, or at least wouldn't be heavily resisted. You'd be wrong on that. The county imposed more than 100 new regulations and "conditions" on them as a prerequisite to opening. Not to be outdone, two cities in a neighboring county are now on the verge of filing suits because THEY want to add regulations of their own. Even though the facility isn't in their county, the outgoing rock will be pulled on trains that run on century old rail lines through these communities. Those rails are already used often, but because the quarry may add more trains to the rails every week, they want a say in its regulation, and are pushing to have the quarry build expensive overpasses and underpasses in their communities and otherwise upgrade all of the crossings. The quarry operators have already indicated that doing so would kill the project...they're a small operation and couldn't possibly afford that sort of expense. These people just want to pull some rocks from the ground, dump them into rail cars, and send them down an existing rail line. It took two years for them to pull the permits from their OWN county to start operation, and now their county has placed the project on hold indefinitely so that neighboring counties have time to draft new regulations and figure out what goodies can be milked from them. It's stupid, and it looks like the 40-60 good paying, permanent (and possibly unionized) jobs that it was to create are going to vanish because the bureaucrats saw a new business opening, and viewed it as a chance to flex their muscles.

[taught_me_patience]

24. These are good examples of bad regulations

and of small communities trying to dip their hands in the pot. Good post... thanks.

[JHB]

29. Any thoughts on the cause of all this?

The classic "bureaucratic mission creep"?
Lack of coordination of things that (individually) make sense?
NIMBYism?
Revenue stream that isn't taxes? (are there fees for permits and inspections?)

[Warren DeMontague]

26. Or, it could be that In n' Out Burger is just way better. nt