Krystal turnaround: Restaurant chain reverses sales slump with new stores, culture, CEO

Paul Macaluso likens his first year at Krystal to a home remodeling project at his own house.

"We basically tore everything down to the studs and rebuilt from there," said Macaluso, who joined Krystal as CEO on April 2, 2018 after previously heading McAllister's Deli and serving as marketing director for Moe's Southwest Grill. "It's been a series of initiatives that we have taken and we've been very pleased with the results."

Krystal, the nation's second oldest fast-food chain which began in downtown Chattanooga in 1932, revamped its marketing, replaced more than a half dozen of its oldest stores and upgraded its food delivery and preparation in the past year to reverse a nearly 3-year decline in same store sales.

For the first time since 2016, Krystal has reversed its declining sales so far in 2019 and boosted same store sales while adding two new stores last year and plans for a couple of new stores this year to the 350-store restaurant chain.

"We had 33 consecutive (28-day) periods of declining sales and that translated into declining profits as well prior to this year," Macaluso said. "But that has been reversed and we're hopeful for even better results in the future."

When Macaluso first joined Krystal as CEO in April 2018, he spoke with customers across the South who had have fond memories of the Krystal brand, but many had not dined at the fast food chain in years.

Krystal has been a Southern icon of sorts for 87 years and is among the top 10 restaurants now competing in a USA Today readers survey for the best regional restaurant brand in America. Macaluso has sought to re-energize the brand with a new ad agency, television campaign and tag line , 'live a little." with a new marketing team, slogan and appeal to today's audience.

"It's about reinvigorating the relevance of the brand," he said. "It speaks to the great energy you get when you come to Krystal and the craving you get for the Krystal.

Krystal also installed new grills and processes to improve its cooking and delivery process to make sure that the famed Krystal hamburger is served hotter.

"We spent almost a half million dollars in all of our restaurants to update our grills and retained all of our team members on how to cook a proper Krystal," Macaluso said.

Krystal President and CEO Paul Macaluso gives a tour of a new prototype Krystal restaurant design on Shallowford Road on Thursday, Dec. 13, 2018, in Chattanooga, Tenn. This is the first Krystal prototype in the Chattanooga area.

Krystal also did a training modular last year and gave new salt shakers at each restaurant to ensure the taste of its french fries.

Krystal has scrapped and replaced seven of its sties, including its restaurant on Shallowford Road near I-75 just north of Hamilton Place Mall.

"The response has been tremendous," Macaluso said. "We're averaging over 60 percent sales increases. In our industry, you hope for something like a 30 percent increase, but we've more than doubled that and that really speaks to the love and dedication people have for this brand. We have plans for more and more of these upgrades and now we have franchisees signing up for these remodelings as well."

Two franchised units have been remodeled to resemble the new prototype design and another six franchise units are planning similar upgrades this year.

The company is planning two more of its scrape and replace units this year - each of which costs more than $1 million.

Krystal is also doing more to invest in its employees and culture, which Maculoso said is helping to build pride among employees and to reduce staff turnover. Macaluso recently traveled across Krystal's 11-state region meeting with general managers as part of the company's "uplift tour."

Through its Krystal Foundation, the company also launched its Square Up scholarship program which granted 15 college scholarships last year and is planning a similar number this year.

The effort has cut employee turnover from 227 percent to 190 percent. That equals about 10 less people a year that we have to hire at each restaurant," he said.

But Krystal, which employs about 6,000 associates at its 350 company-owned and franchise restaurants, is still busy hiring, especially for late night business that is growing rapidly with Krystal's delivery business. More than 60 percent of Krystal's restaurants now have third party delivery of its food products and Krystal's sackful menu items are well suited for delivery service, Macaluso said.

"We designed our menu to be profitable for us and the deliverers and still a great value for the consumer and that has really taken off," he said.

Over half of Krystal's growing delivery business comes after 10 p.m., which is propelling extra sales and staffing late night for many Krystal units, Macaluso said.

Chattanooga has been one of the hot markets for Krystal with some of the biggest sales gains of any of Krystal's markets, Macaluso said.

"I think the remainder of the year we will continue to gain momentum and fuel us for a great 2020," he said.

Contact Dave Flessner at dflessner@timesfreepress.com or 757-6340.