Krystal offices moving to Atlanta

photo Krystal's Chattanooga headquarters

Company at a glanceName: Krystal Co.Owner: Argonne Capital Group, a private equity firm in AtlantaUnits: 350, including 210 company-owned stores, in 11 states.Local presence: 20 area restaurants, 60-employee headquarters downtownAnnual sales: $400 million of system sales, $300 million of direct salesStaff: 6,000 employeesHistory: Founded in Chattanooga in 1932, the nation's second-oldest fast-food chain behind only White CastleKrystal timeline1932 - The first Krystal opens on the corner of Cherry and Seventh streets in downtown Chattanooga selling small, square hamburgers for 5 cents each.1941 - The company grows to 33 restaurants in Tennessee, Georgia and Alabama1950s - Company adds drive-through window1965 - Krystal opens 100th restaurant1978 - Krystal reaches more than 5,700 employees1982 - Present logo is launched1992 - Krystal becomes publicly traded company on the Nasdaq Exchange1997 - Krystal files for bankruptcy and is acquired by Port Royal Holdings in a $145 million deal2003 - Fred Exum takes over as CEO2012 - Argonne Capital Group buys Krystal in $175 million deal. Doug Pendergast is named CEO.2013 - Krystal headquarters will move from Chattanooga to Atlanta.

One of Chattanooga's best-known corporate icons is headed south.

As the Krystal Co. celebrates its 80th year in the Scenic City this year, executives on Wednesday announced that Krystal is preparing to leave the city of its birth next year.

Krystal CEO Doug Pendergast, who took over shortly after the company was sold to an Atlanta-based investment group in March, said moving the headquarters to Atlanta will put Krystal executives closer to more restaurants and improve air service to its units.

There are 350 Krystal restaurants located across 11 Southern states.

Krystal will complete its headquarters move by early 2013, bringing its iconic sign down from the Chattanooga building that bears its name sometime next year.

"Our five-year plan calls for aggressive new store growth, and Atlanta provides a more central location with access to one of the country's largest airports," Pendergast said.

There are about 60 employees left at the company's headquarters, down from 100 when Pendergast took the helm. Employees will have the option to apply for new positions in the Atlanta office, and the company will offer severance packages and job search assistance to those who do not relocate, the company said in an announcement Wednesday.

Krystal will continue to operate 20 restaurants and a distribution warehouse in the Chattanooga area, Pendergast said. The company's 6,000 restaurant employees will not be affected "so this involves only about 1 percent of all of our workers," he said.

"This decision was led primarily by our redefinition of this set of folks in the Krystal building as being the restaurant support center, and not the company headquarters," Pendergast said.

He said Atlanta is the best hub for Krystal, which operates 60 units there, "and we can fly directly from Atlanta to all of our markets.

"We're just not able to do that from Chattanooga," Pendergast said.

Krystal museum

Chattanooga "has been a wonderful home for Krystal," Pendergast said, and he hopes to locate a Krystal museum, perhaps with a working restaurant, in downtown Chattanooga.

"The birthplace and the soul of the brand is always going to be here, and we think something like a museum would be a way to demonstrate that physically," Pendergast said from his sixth-floor corporate office in the Krystal building in Chattanooga.

The company is working on the museum concept with the city and the Davenport family, which helped start Krystal in 1932. The museum will display some of the original Krystal equipment, menus, photographs.

Bob Doak, president of the Chattanooga Area Convention and Visitors Bureau, said bringing a unique attraction such as a Krystal museum downtown should bring more visitors to town and keep others here longer.

"Just the curiosity about a chain that's been around as many years as it has, its uniqueness, yes, I do think it would be appealing," Doak said.

Krystal cravings

Krystal plans to add 150 units over the next five years, and Pendergast said he believes the company could double the number of units within its current service territory and expand even more outside its 11-state region.

"In five years if we're not opening a new restaurant every week, then we will have missed out on some opportunities," he said.

Pendergast, who came to Krystal in March after serving as chief development officer for the Chattanooga-based Craftworks Restaurants and Breweries Inc., said he has spent the past six months working to improve the way Krystal builds and operates its restaurants.

By cutting down on the space and materials required for new stores and using rehabilitated equipment, Krystal has pared the expense of opening new restaurants by 25 percent, Pendergast said.

"We were putting Italian tile and custom paint in our stores, and now we will be using materials that cost only 10 percent as much," he said.

The first of the new and less-expensive restaurant designs will open next winter in Ringgold, Ga.

"We want to refresh the brand, not revolutionize it," he said.

Pendergast said the company also is working to improve its operations.

In his first week on the job, Pendergast sampled 500 Krystal customers and asked them to compare Krystal with 20 other fast-food brands on cleanliness, quality and consistency.

"We were dead last, so we are working to fix the basics of our operational execution," he said.

Pendergast said he isn't looking to try to acquire other brands or franchises.

"We think it's tough enough to run one business and one brand well and we're going to stick to that," he said.

Ownership shift

Atlanta-based Argonne Capital Group purchased Krystal for about $175 million from the existing management team, which at the time was led by Fred Exum. Exum and other Chattanooga-based managers left shortly after the purchase, along with a number of other top executives.

In an interview shortly after the sale, then-CEO Exum claimed that retaining Krystal's Chattanooga headquarters had been a condition of the sale.

However, the company's eventual exit was foreshadowed when the new owners were made up of a group of executives and investors who were almost all Atlanta-based, many of whom had worked at Atlanta-based Church's Chicken.

In addition to Pendergast himself, both chief information officer Partha Mukherjee and Al Ryan, vice president of operations, worked previously at Church's Chicken.

Harsha Agadi, a nonexecutive chairman of Krystal's board, worked with both Church's Chicken and Friendly's Ice Cream Corp. before the Krystal takeover.

Of the executives listed on Krystal's website, only Scott Cochran, chief accounting officer, is not a Church's Chicken alumnus.

Pendergast said the move to Atlanta "has nothing to do with Argonne's location" in Atlanta and he expects eventually to lease space north of downtown Atlanta separate from Argonne's offices.

Krystal leases two floors of the Krystal building and uses the basement for its test kitchens.

Russ Elliott, principal broker for Luken Holdings which owns the Krystal building, said a new anchor tenant will be sought to fill the Krystal space. Such a tenant could get its name on the building to replace Krystal, he said.

Business Editor Dave Flessner contributed to this story.

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