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Commodity costs may drive price hikes at CKE

Commodity costs may drive price hikes at CKE

A Heard on the Call report following third quarter earnings

Commodity costs show no sign of easing in 2012 and continued menu price increases may be necessary for the Carl’s Jr. and Hardee’s quick-service chains in the new year, company officials said Wednesday.

In a call to analysts following the release of third quarter results on Tuesday, officials with CKE Restaurants Inc., parent of the Carl’s Jr. and Hardee’s chains, said this year’s commodity costs were about 5 percent to 6 percent higher than those in 2010, primarily because of inflation related to beef, oil and cheese.

Both chains have raised menu prices several times this year, though the company declined to say by how much. Like the chain’s competitors, the company said price increases may continue into next year.

“All of our competitors have been more aggressive with pricing this year and that’s something that may need to continue,” said Ted Abajian, CKE’s chief financial officer.

Both Carl’s Jr. and Hardee’s have been promoting fewer inflation-prone products, such as variations on hand-breaded chicken tenders — a Buffalo-flavored version debuted at Hardee’s last month — as well as turkey burgers at both chains.

RELATED: Turkey's year-round popularity climbs

On Wednesday, the company said it would expand the turkey burger line with a new Santa Fe version at Carl’s Jr., featuring a charbroiled patty with Santa Fe sauce, pepper-Jack cheese, lettuce, tomato, red onion and sliced green chilis on a honey-wheat bun for a suggested $3.49, or $5.99 as part of a combination meal.

While same-store sales in the third quarter were positive for both brands, Andrew Puzder, CKE’s chief executive, said turkey burger sales slowed somewhat earlier this year after news hit of a turkey meat recall due to possible salmonella contamination — though meat used by Carl’s Jr. and Hardee’s was not part of the recall.

Puzder said he was confident the popularity of the new burger line would resume, particularly with the debut of another new turkey burger planned for January.

“Our chicken and turkey products have been great for both brands, and we’ll continue to do variations,” he said.

Both Hardee’s and Carl’s Jr. also promoted a new beef Steakhouse Burger in September with prices up to $5.39 for a Six Dollar version at Carl’s Jr., featuring a nearly half-pound patty.


Puzder said the burger did well, but guests tended to order the burger without sides or a drink, reflecting the continuing reluctance of consumers to spend.

The debut of Wendy’s new Dave’s Hot N’ Juice Cheeseburger earlier this year, however, had “no discernable effect” on sales at Carl’s Jr. and Hardee’s, he said.

When asked for projections of commodity cost increases for CKE into next year, Puzder cited industry reports that have projected commodity inflation of 3 percent to 5 percent, depending on product mix.

“I don’t know that we’ll be any different from that range,” he said.

“At the moment, I don’t see any relief coming down the pike on food costs,” Puzder added. “We’ll continue to adjust our prices and our product mix.”

EARLIER: Price increases, new menu items boost Carl’s Jr., Hardee’s sales

For the first time this year, CKE expects to see more international franchise locations open than those in the United States. Before the end of the year, the company expects 34 restaurants will open domestically, and 43 internationally.

On Wednesday, CKE announced a new partnership to develop Carl’s Jr. locations in New Zealand, for example, where the chain already has two outlets. Franchisee Restaurant Brands New Zealand Limited also operates KFC, Pizza Hut and Starbucks Coffee locations there.

CKE has more than 400 restaurants in Mexico, the Middle East, Asia, Russia and Latin America.

The company operates, franchises or licenses 3,219 restaurants in 42 states and 23 countries.

Contact Lisa Jennings at [email protected].
Follow her on Twitter: @livetodineout

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