Cost of living, lack of originality and new fast-food cuisines killed Carl Jr’s Australian ambitions

The US burger giant had ambitious plans to open hundreds of stores across the nation, but faced an uphill battle from the start. Here’s what it got wrong.

One year ago, Carl’s Jr managing director Andrew Firn spoke to the Herald Sun about his ambitious goal for the fast food chain in Australia.

Unlike the beloved burger joint’s flame-tickled beef patties, he didn’t mince his words.

“We wouldn’t be opening 200 restaurants if consumers weren’t coming in and buying burgers from us,” Firn said last July.

“And we (Quick Service Restaurants Group) wouldn’t be investing to turbocharge growth if we didn’t think we’d be successful.”

Carl's Jr had ambitious goals to crack Australia’s fast food market.

At the time, QSR was weeks away from opening its 42nd Australian franchise in Craigieburn.

It already had 23 Carl’s Jr outlets up and running in Victoria and New South Wales and had signed agreements to open another 40 over the next 18 months.

This was a burger chain clearly hungry for success, vying to be the third largest in Australia, going toe to toe with McDonald’s and Hungry Jacks.

One year on, it’s a different story.

QSR Group, the master franchisee of Carl’s Jr in Australia, entered voluntary administration on Monday.

Multiple stores across Victoria, including Melton, Thomastown, Docklands, Knox, Craigieburn, Shepparton, Wodonga, Ballarat and Tarneit have been impacted.

Hundreds of jobs remain under a cloud.

So what went wrong?

A downturn in customer spending, increased operational costs and the cost of living crisis are all feasible explanations.

Retail expert professor Gary Mortimer blamed a “perfect storm” of issues.

“In the last 18 months, we have seen that (post-Covid spending) demand stabilise and some sectors decline as cost of living impacts family budgets,” he said.

“We have had multiple interest rate hikes, the cost of dining out in general has increased, including the likes of fast food. More people are eating at home and buying better quality food and cuts of meat, rather than dining out.

“I suspect (Carl’s Jnr’s downfall) is the perfect storm of factors. On the demand side, consumers are constrained in spending. On the supply side, fast food operators and restaurants are struggling to maintain profitability.”

Paris Hilton famously advertised the burger chain.

Prof Mortimer is an active researcher in food retailing, retail marketing and consumer behaviour at Queensland University of Technology’s Business School.

Unlike the United States and Europe which had varied competition, he said Australia’s fast-food market was tight and typically reserved for two major players at the top.

“It’s incredibly competitive and tight market the fast food sector in Australia,” Prof Mortimer said.

“When we start to look at segments, take pizza for instance, it’s dominated by two big players: Pizza Hut and Dominos, with some smaller players on the outside,” he said.

“Burgers in particular are significantly competitive marketplace, generally underpinned for low price value often driven by McDonald’s and Hungry Jacks. Emerging players have carved a niche in a the market by providing a better quality burger, like Burger Edge or Betty’s Burgers.”

US burger chain Carl’s Jr is closing 20 stores Australia-wide.

Prof Mortimer suspected in the case of Carl’s Jnr, it wasn’t different enough from its competitors.

“Being a relatively smaller player in a highly competitive and crowded market, with not a significantly different offer, you’re exposed more highly to those market pressures, such as cost of supplies and decline in consumer spending,” he said.

“Whereas a bigger player like KFC and McDonald’s can weather the storm, smaller players have less of a margin and revenue at the top line to weather six, 12 or 18 months of tough economic times.”

Prof Mortimer said emerging cuisines, such as Roll’d Vietnamese rice paper rolls or Guzman and Gomez burritos and nachos, had demonstrated they were more likely to find success in Australia’s market.

Retail experts say Carl’s Jr didn’t have a strong enough niche to cut-through Australia’s fiercely competitive fast food market.

As for the future for Carl’s Jr, not all hope is lost.

KPMG late last night announced David Hardy, George Georges and Emily Seeckts had been appointed administrators to Carl’s Jr fast-food stores across Victoria, New South Wales and Queensland.

Four Australian stores remain open, including Dandenong, Tarneit and Melton in Victoria, with 20 under administration.

A further 25 stores independently owned and operated by third party sub-licensees are not impacted.

All Queensland stores remain open and unaffected by the voluntary administration of Victorian-based QSR Group.

“It’s business as usual for all Queensland restaurants which are in no way compromised by the financial position of CJ’s QSR’s, or its entry into Administration. Furthermore, the 450 staff employed in Queensland restaurants will all retain their jobs,’ a spokesperson said.

CKE Restaurants, the parent of Carl’s Jr Restaurants globally, said it was working with the administrator to transition the 25 sublicensed restaurants to a direct licensed relationship.

It anticipated little to no change in the continued operation of these locations and each remain open.

In Victoria, these include restaurants located in Armstrong Creek and Beaconsfield.

A CKE spokesman said: “CKE is committed to the people and the brand in the Australian market, and we have an exceptional community of independent licensees operating our restaurants across the country.”

KPMG Australia’s Restructuring Services Partner David Hardy said his initial focus was on stabilising the operations of CJ’s Group.

“We will be conducting an immediate sale process of the existing store network and operations,” he said.

“We will be working with all stakeholders, including employees, suppliers and landlords, to maximise the outcome for all parties.”

All suppliers, customers, landlords and other key stakeholders will be contacted in the coming days and a meeting of creditors is scheduled for next Wednesday.