Krystal restaurant chain has big plans for expansion

Krystal restaurant chain has big plans for expansion

October 18th, 2011 by Ellis Smith in Business Around the Region

A new Krystal restaurant opens for business Monday in Chattanooga at 3150 South Broad St., replacing the nearby Krystal location that closed last month.

Photo by John Rawlston /Times Free Press.

The Krystal Co. is set to double the number of restaurants it owns or franchises to 760 over the next five years, but much of that growth could happen under new ownership if a planned sale goes forward by the end of 2011, officials said.

"We're halfway through the [sale] process," said CEO Fred Exum. "The plan is to complete the process by the end of the year."

Exum said the chain's expansion in the Southeast, what he calls its "heritage market," had "nothing to do" with prepping the burger chain for a potential buyer.

Instead, it has everything to do with modernizing Krystal's stable of older restaurants and shifting stores to more profitable locations -- a process that has been under way for several years, Exum said.

Krystal's latest restaurant redesign, which executives showcased Monday on South Broad Street, is one of a flurry of new locations under construction across the Southeast, said Howard Nelson, vice president of operations.

Another first for the company is its new storefront model -- suitable for strip malls or other high-density locations that Krystal will test in Atlanta under the code name, "Krystal Too."

Including the company's new Broad Street location in Chattanooga, Krystal has opened six restaurants in 2011, including stores in Tampa, Fla.; Gulfport, Miss.; Millidgeville, Ga.; Murphy, N.C.; and Jacksonville, Fla., officials said.

The new, smaller designs cost about $500,000 less to build than a typical Krystal, bringing the cost for a new restaurant down to about $1 million, Nelson said.

POLL: How often do you eat at Krystal?

A look at The Krystal Co.:

  • Headquarters: Chattanooga, home to 700 corporate employees
  • Founded: Oct. 24, 1932
  • No. of restaurants: 380 in 11 states
  • Employees: More than 6,500 employees, projected to grow to 13,000 within five years
  • Owners: Private investment group that includes Summerfield K. Johnston, Probasco and Patten family members in Chattanooga and the Ingram family in Nashville. The owners are seeking to sell the company.
  • CEO: Fred Exum

New restaurants:

  • Chattanooga, Tenn.
  • Panama City, Fla.
  • Gulfport, Miss.
  • Tampa, Fla.
  • Murphy, N.C.
  • Milledgeville, Ga.

Opening soon:

  • Winter Haven, Fla.
  • Plant City, Fla.
  • St. Augustine, Fla.

Source: The Krystal Co.

Customer Norma McCollum talks with Krystal Company CEO Fred Exum as a new Krystal restaurant opens for business Monday in downtown Chattanooga at 3150 South Broad St., replacing the nearby Krystal location that closed last month.

Customer Norma McCollum talks with Krystal Company CEO...

Photo by John Rawlston /Times Free Press.

"We're definitely back in growth mode," he added.

A tough economy has driven consumers toward less-expensive fast food options, and the company has found that its small, steamed Krystal burgers often fit the bill.

Executives were initially forced to close more than 40 obsolete restaurants during the recession. But the restaurant chain continued buying undervalued property starting in 2008 to prepare for a post-downturn resurgence, officials said.

Plans to expand outside the Southeast were also scrapped during the recession, including an experimental restaurant on Brainerd Road with alternate menu options and a carhop service designed to appeal to palates outside the Southeast.

"Two things struck us. One was the recession," Nelson said. "The other was the fact that we have a lot of potential to grow right here in our heritage market."

The company has "withdrawn in size over the last 14 years" as populations shifted and less efficient stores fell behind, he said.

One of those was the since-replaced location on Broad Street's west side that was built in the 1970s.

"As far as expansion goes, we're unique in that we have a lot of old facilities," Exum said.

underdog rises

But changing consumer tastes have given the scrappy, Southern underdog an opening.

Quick Service Magazine recently rated the Krystal drive-through experience third among its competitors, beating a number of national brands, and the company has found traction with new tastes such as its crispy onion BBQ Krystal and new "chiks" that are planned for a 2012 launch, said Jeff Rahn, director of product marketing.

Though 50 percent of the company's revenue still comes from its signature Krystal burgers, more than 100 new products are under consideration each year, Rahn said.

"We'll whittle that down to about 60 products, and then we'll do consumer testing on those," he said. "We just want to make sure its an appropriate fit, making sure our products appeal to people in the southeast."

City Councilman Manny Rico was on hand to praise the opening of the new restaurant across the street from the old one.

"My grandson was really upset when they closed the other one down," he said. "I think he was having withdrawal."

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