BusinessTN

While Southern baby boomers came of age haunting the local Krystal, their kids are more likely to be found hanging out in cyberspace. That’s the challenge Krystal faces as it promotes its free Wi-Fi next month: appealing to the coveted fast food demographic of 18- to 24-year-olds while tapping into nostalgia for a 73-year-old brand.

Krystal began offering free Internet at its 237 company-owned restaurants last August and is pushing its 179 franchise units to do the same. At a per-store cost of $1,200, Wi-Fi is not a major investment, and Krystal’s vice president of marketing, Mike Williams, says he does not expect it to significantly change the 70/30 drive-thru/dine-in ratio. Customer use of Wi-Fi is “a difficult thing to track and to directly relate to sales,” he says. “We do it for other reasons.”

Those reasons involve a careful reshaping of Krystal’s image since 1997, when Philip H. Sanford formed Port Royal Holdings and acquired a company struggling to find an identity in a competitive industry. During the 1990s, Krystal dramatically increased its markets and unit numbers through aggressive franchising; in 1992, the company subsidized expansion by selling 30% of its stock at an IPO of $12 a share. But in its push to grow, Krystal fought the very image its customers loved. The chain strayed from its value niche, introducing a full-sized burger and other mainstream offerings just as industry leaders like McDonald’s unveiled new 99 cent menus. And an attempt to define itself as cutting-edge missed its mark with ads featuring characters like Bob the Head. “It made Krystal customers look like they were kind of weird and quirky, and that’s not the case at all,” Williams says.

Add to the mix Krystal’s $13 million settlement of a class-action suit, and by May 1997 its stock was selling at $4.87 a share. Motivated to redeem a brand he loved, Sanford bought the stock at more than twice its value. He and his successor, current CEO Fred Exum, have since fostered a steady growth in sales ($423 million in 2005) by anticipating industry trends like free Wi-Fi while actively marketing Krystal’s decades-old reputation as a hangout. The theme plays out in the chain’s current “re-imaging” of its units. The updated restaurant, Williams says, has “retro elements of the old Krystal, but it will look new and kind of cool.”

For Williams, the operative phrase is “back to basics” like the famous burger itself: fresh, hot, small and, it turns out, not so square.