Thanks to Allysia Finley for her profile in this past weekend’s Wall Street Journal.
The following originally appeared in the Wall Street Journal on June 14, 2013.
‘We’re not the brand for people who eat nuts and bark,” CKE Restaurants CEO Andy Puzder, tells me without apology. “Hell, I’ll walk into one of our stores to get a barbecue chicken sandwich and walk out with a Western bacon cheeseburger. You smell them, and you just get hungry. We’re the ‘young, hungry guy’ brand.”
Even those who have never frequented one of Mr. Puzder’s fast-food restaurants—known as Carl’s Jr. west of the Rocky Mountains, and as Hardee’s in the Eastern U.S.—will be familiar with his dude-centric brand. How could anyone forget their Super Bowl ads?
This year’s featured 21-year-old Danish swimsuit model Nina Agdal fondling a fish sandwich on a beach in Maui. In last year’s 1950s throwback ad, blonde bombshell Kate Upton gorged on a Southwest jalapeno patty melt at a drive-in as she stripped to the tune of “Some Like It Hot.” For the record, Mr. Puzder says he doesn’t attend his company’s ad shoots: “I have a very good marriage. And I want to keep it preserved.”
The demographic targeted by the ads does not include the CKE chief executive. But as Mr. Puzder, a fit and trim father of six, with six grandchildren and a seventh on the way, tells me in a recent visit to the Journal’s offices, “I’m 62. I to be a young, hungry guy.”
The robust marketing has helped revive a company that a decade ago was still suffering a $700 million debt hangover after purchasing Hardee’s in 1997. Since Mr. Puzder took charge in 2000, CKE has grown consistently. Revenues have increased by 3.6% over the past year to about $1.3 billion, and its international restaurant count has grown by more than 15% annually over the past three years. Mr. Puzder is quick to point out that many of his competitors aren’t doing as well and the U.S. economy remains underpowered.
Government policies, he says, are stifling young, hungry entrepreneurs, and he doesn’t mean tech hotshots. He means the kind of entrepreneurs who run fast-food joints, often immigrants and minorities without much education. In other words, the very people that liberals say they want to help.
The fast-food executive rattles off a list of market suppressants, including uncertainty over labor costs, commodity and food prices, and taxes. But his is ObamaCare.
Mr. Puzder says his health-care consultants have calculated that it’s cheaper to offer his company’s 21,000 U.S. employees more expensive health-insurance plans than to drop them into state exchanges and pay the penalty for not covering what ObamaCare regulators deem are “essential health benefits.” Yet his consultants can’t figure out how many people will sign up under the new plans because the Health and Human Services Department hasn’t issued final regulations.
Only 63% of CKE’s general managers are currently covered by the company’s insurance plan, and a mere 6% of regular workers enroll in its “mini-med” plans, which are prohibited under ObamaCare because they include benefit caps.
“The ones who don’t sign up are the young guys and gals who feel that they are healthy and if they get sick, they just go to the emergency room,” Mr. Puzder says. Under ObamaCare, “people who were worried about getting stuck without insurance can still go to the emergency room for free and no longer have the incentive of catastrophic illness to sign up for insurance. . . . So the incentives to sign up for the plan just disappeared.”
About 40% of Mr. Puzder’s employees are part-time and therefore exempt from ObamaCare’s coverage mandates. “That percentage of employees will probably go up. Everybody is hiring more part-time employees,” he says, though he is quick to add that “we’re not firing anyone to hire” part-time workers. “Through attrition, three full-time employees go away and you hire four part-time employees who basically have the same hours.”
Mr. Puzder also expects fast-food restaurants to deal with ObamaCare by replacing workers with kiosks. “You’re going to go into a fast-food restaurant and order on an iPad or tablet instead of talking to a person because we don’t have to pay benefits for any of those things.”
While Mr. Puzder supports technological progress and the efficiency of tools like the iPad, he laments that “there’s a personal element that you don’t get from machines, and I think you’re going to lose that.” It’s also unfortunate, he says, because fast food is a “great level of job for people to enter the labor force. A high percentage of our employees, particularly in California, are immigrants.”
A lot of fast-food executives and corporate leaders got their first business lessons while working at fast-food restaurants. For instance, former McDonald’s chairman and father of the Chicken McNugget, Fred Turner, started out by flipping burgers in 1956 at a restaurant in Des Plaines, Ill. Retired McDonald’s CEO Jim Skinner also began as a burger grunt. Mr. Puzder admits that he’s an exception.
In the 1990s, Carl’s Jr. founder Carl Karcher hired him as his personal attorney and then as company general counsel. When Karcher found out, as Mr. Puzder puts it, that “he was in deep financial trouble,” Mr. Puzder helped design a deal with Bill Foley at Fidelity National to save his boss from financial ruin. Three years after CKE nearly went bankrupt from acquiring Hardee’s—the stock price had plummeted to $2.85 per share in October 2000 from $42 in July 1997—Mr. Puzder was elevated to CEO.
Why was he chosen? “The board decided that maybe I would be the best CEO because I was the only one who thought that converting Hardee’s to Carl’s Jr. wouldn’t work,” Mr. Puzder says with a shrug.
Instead of taking the company into bankruptcy, which Mr. Puzder says wouldn’t have benefitted anyone, he focused on improving quality, service and cleanliness. He also streamlined Hardee’s complex menu. “We fixed those things, and brought a bunch of girls in bikinis into ads and it worked out great,” he says.
In 2010, he took the company private with Apollo Global Management in a deal valued at $1 billion, which was about four times the market cap when he took the reins in 2000. Mr. Puzder says he wanted to invest more in the business and didn’t think shareholders recognized the company’s value or growth opportunities.
Fast-forward a few years. The company, which was dubbed most improved burger chain by consumer research firms Sandelman and Technomic last year, is expanding rapidly. It has 3,300 restaurants in 42 states and 28 foreign countries. There are 248 sites in the Middle East. This year the company is looking to expand into Europe and Northeast states like New York and New Jersey.
Mr. Puzder’s Journal visit comes while he’s in New York scoping out sites for new restaurants in the city. I ask him how he plans to deal with New York’s sky-high rents, a recent minimum-wage hike and labyrinth of regulations. “I went into a McDonald’s yesterday and a Big Mac combo cost $7.19 for a Big Mac, fries and a drink,” he says. “That’s how you deal with it.”
Still, he says, it’s much easier to grow in business-friendly places like Texas, where the company plans to open 300 new restaurants by the end of the decade. Restaurants in Houston and San Antonio hold the company record for highest first-week sales in the U.S. “All those records used to be in California,” he notes.
These days, California is one of the few states where the company isn’t looking to expand. “Like many businesses, we love California and would love to build more restaurants,” he says. But “California is not interested in having businesses grow,” even though many multinational companies, including CKE, have headquarters there.
Consider how long it takes for one of his restaurants to get a building permit after signing a lease. It takes 60 days in Texas, 63 in Shanghai, and 125 in Novosibirsk, Russia. In Los Angeles, it’s 285. “I can open up a restaurant faster on Karl Marx Prospect in Siberia than on Carl Karcher Boulevard in California,” he says.
Then there are California’s cumbersome labor regulations, which appear designed to encourage litigation. The company has spent $20 million in the state over the past eight years on damages and attorney fees related to class-action lawsuits.
Mr. Puzder’s favorite California-bites-business story is a law that requires employers to pay general managers overtime if they spend 50% of their time on non-managerial tasks like working the register if they’re short-staffed, “which is what we pay and bonus them to do in just about every other state.” Since managers were filing class-action lawsuits against the company for not being paid overtime, “every retailer in the state basically has now taken their general managers and made them hourly employees.”
The managers hated the change “because they worked all their careers to get off the base to become managers,” he says, and paying themselves overtime could hurt their restaurants’ bottom lines and chances of a bonus. Mr. Puzder adds that his company must now fire managers who don’t report their work hours because they present a legal risk.
He tells the fired managers “to go to Tennessee or Texas, where we’ll rehire them and they’ll learn entrepreneurial skills.” General managers for CKE restaurants earn on average $50,000, Mr. Puzder says, and can make 100% of their salary in bonuses.
A couple of years ago Mr. Puzder created a stir in California by suggesting that he might move his corporate headquarters to Texas. Is he still pondering the switch? Nah, he says. Now his eyes are on Nashville, Tenn. Like Texas, Tennessee doesn’t have an income tax. But in any case, he says, “Who cares where our corporate offices are? Quite honestly, what difference does that make? . . . The important point is where are you building?”
Corporations based in California, including Silicon Valley sweethearts eBay, PayPal and Google, are increasingly employing their capital where labor and the cost of doing business are cheaper. The ultimate victims are middle-class entrepreneurs, like restaurant managers, and the low-skill workers they employ.
But as the writer Wallace Stegner once observed, California is like the rest of America, only more so. “There’s so much entrepreneurial spirit in this country. If you talk to these kids—well I shouldn’t be calling them kids, but I’m 62—they really want to create wealth,” Mr. Puzder says. “But they’re stifled.”