Syracuse, N.Y. — Sixty-four years ago, Herbert Slotnick decided to break out on his own after helping his father expand his chain of Central New York movie theaters and drive-ins.
After hearing a presentation on a new fast-food chain named McDonald’s during a business trip to Chicago, the World War II combat veteran applied for a franchise with the company but was rejected.
So he bought the exclusive franchise rights in New York to Carrol Systems, a fast-food restaurant chain that was a division of a Midwestern firm, Tastee Freez. The company was named after the daughter of a Tastee Freez co-owner.
Slotnick, who often worked the refreshment stands at his father’s theaters when he was a kid, opened his first two Carrols Drive-In Restaurants on Erie Boulevard in DeWitt and Route 11 in Mattydale, offering a family-friendly menu with prices that were low even for 1960.
“Pure beef” hamburgers sold for 15 cents. “Crispy” french fries were a dime. “Triple-thick” 16-ounce milkshakes went for a whopping 20 cents.
The restaurants proved so popular that Slotnick bought the entire company and opened more than 150 Carrols, mostly in New York and Pennsylvania in the 1960s and 1970s.
Flash forward to 2024. Carrols restaurants are long gone. But the company has turned itself into the largest Burger King franchisee in the nation, operating 1,022 Burger Kings in 23 states.
That’s one of every seven Burger Kings in the U.S., owned by a company with its headquarters on James Street just a few blocks from downtown Syracuse.
That’s all about to change.
In a surprising move, Carrols and Burger King’s corporate parent, Restaurant Brands International, announced last week they have reached an agreement. RBI will buy Carrols for $1 billion in cash.
For Toronto-based RBI, it appears a smart investment. Over the years, the Carrols’ Burger Kings built a reputation as being some of the best-run in the quick-serve restaurant industry, analysts told syracuse.com | The Post-Standard last week.
“Carrols is doing very well,” said Jeremy Hamblin, an analyst with Craig-Hallum Capital Group. “Carrols was the No. 1 performing restaurant stock last year.”
The hamburger empire was built on a simple concept, people who’ve worked for Carrols told syracuse.com. Pick a good location and serve cheap and good food. Cleanliness and hospitality are as important as the meals, said one restauranteur who still occasionally puts a “Club Burger” on the menu to celebrate Carrols’ legacy.
Currently, more than 24,000 people work for the company that also includes 60 Popeyes restaurants in six states, making it the spicy-chicken chain’s eighth largest franchisee.
In fact, Carrols is one of the largest restaurant franchisees of any sort in the country, generating $1.8 billion in sales annually. It went public at the end of 2006, making it one of the few publicly traded restaurant franchisees in the country and one of the few Syracuse-based businesses whose stock is publicly traded.
Those rising revenues are one, though not the only, driver behind the $1 billion deal, which is expected to be completed by summer.
What’s driving the deal?
For one thing, RBI will be acquiring hundreds of well-run Burger Kings that have regained profitability as Carrols has recovered from a brutal coronavirus pandemic that closed its dining rooms for a time. Carrols turned a profit of $28.4 million in the first nine months of 2023, compared with a loss of $56.4 million in the same period a year earlier.
“As Restaurant Brands International looks to put Burger King on a much more solid footing across the nation, this is a great opportunity for them to do that,” said Joshua Long, an analyst at Stephens. “They come in, they buy stores that are already well run, profitable and kind of the bleeding edge of all of the innovation that they’re trying to unfold.”
Even more important, the deal will help RBI speed up the remodeling of Burger Kings throughout the country.
RBI makes money by charging its franchise owners royalty fees on the total sales in each of their restaurants. The more customers that come through the restaurants and buy more burgers, the higher the sales and, thus, the higher the royalty fees for RBI.
Popular new menu items are one way to drive customer traffic, but they can be hit or miss. A more reliable way to get more diners into booths and drive-thrus? Remodel existing stores. That can bump up sales as much as 10% as customers are drawn to a newer, more modern look.
Burger King corporate, from Toronto, can spruce up the restaurants much faster than Carrols in Syracuse could. RBI said it plans to accelerate the pace of Carrols’ restaurant remodels from 45 planned for 2024 to an average of 120 a year for the next five years, at a cost of more than $800,000 per restaurant.
That means that all 600 of Carrols restaurants that do not meet Burger King’s ideal of a modern image will be remodeled by the end of 2029.
In the long run, RBI doesn’t plan to keep Carrols’ more than 1,000 Burger Kings. It plans to sell all but about 200 of them to small franchise operators who live in the communities where the restaurants are located, the company said. The ones it will keep will be used for training and research and development purposes.
If the planned remodels are successful in boosting restaurant sales, RBI can use that success to persuade the owners of its other nearly 6,000 franchised Burger Kings in the U.S. to invest in similar remodeling.
“This can really be held out as kind of a template, so they can say, hey, if you make these investments, you know, look at the operating cash flow that these stores are generating,” Hamblin said.
Time to cash in
For Carrols’ shareholders, the sale means they will be selling their stock at a premium. Specifically, RBI will pay $9.55 per share in an all-cash transaction valued at $1 billion. That’s enough money to buy 143 million Whopper sandwiches.
The price is 23.1% above Carrols’ 30-day average share price as of Jan. 12, and 13.4% above its Jan. 12 closing price.
Some investors might feel that’s not much of a premium, given that Carrols’ stock was selling for over $14 a share as late as 2018. On the other hand, the stock was selling for $1.87 a share a year ago, before the company shook off the effects of the pandemic.
If you bought Carrols stock a year ago, you’d be quintupling your investment right now.
All of which means that a Syracuse company that became the king of Burger King franchises is about to disappear.
How Carrols joined the King
After 15 years of running its own chain of restaurants, Carrols began to feel the heat from two up-and-coming national burger chains. McDonald’s and Burger King began eating Carrols’ lunch, posing an existential threat to the Syracuse company.
“McDonald’s and Burger King would come after us, build next door and then outspend us,” Slotnick told syracuse.com | The Post-Standard in 2010, five years before he died at age 89.
Carrols even came out with the Club Burger — a double burger on a sesame seed bun with lettuce and a special sauce — to compete with the Big Mac. But it wasn’t enough.
So Slotnick figured it was better to join them if he couldn’t beat them. He entered into a franchise agreement with Burger King, home of the Whopper, in 1975. (Remember, McDonald’s dissed him years earlier.)
The deal required Carrols to convert a select number of its restaurants to Burger Kings over the next five years and phase out the others.
“He knew he had to join the big boys,” his brother Melvin, an attorney who served on Carrols’ board of directors and did legal work for the company, told syracuse.com | The Post-Standard last week.
A Carrols restaurant in Batavia was the last to close. It was converted into a TJ’s Big Boy in the early 1980s and then to a Tully’s in 1991. (Yes, that Tully’s.) It remains a Tully’s and is still owned by the Giamartino family, which operated it when it was a Carrols.
John Giamartino, who worked for Carrols for four years as a supervisor before becoming the franchise owner of the Batavia Carrols, remembers Slotnick as being a “very sharp, very astute, very good businessman” who taught him the keys to running a successful restaurant chain.
“It all comes down to a good location, good food, good service and cleanliness,” said Giamartino, whose family operates 13 Tully’s in New York and one in Pennsylvania, which occasionally offer a double cheeseburger named the Club Burger.
Super-sized growth
Slotnick retired in 1985, but his successors at Carrols quietly grew the company by building new Burger Kings and buying up existing ones whenever they became available.
“We’re probably the biggest, quietest company around,” said then-CEO Dan Accordino in 2012.
Much of the growth occurred in the 2010s under Accordino, who cut a deal with Burger King that gave Carrols first dibs on any franchise that came up for sale in 20 states.
Before the deal was cut in 2012, Carrols owned 297 Burger Kings in the Northeast, Midwest and Southeast, already making it the nation’s biggest owner of Burger Kings. As part of the deal, Carrols bought 278 more Burger Kings, giving it a total of 575.
The need to speed up restaurant remodels drove that deal, too. At the time, Burger King was losing its battle against Carrols’ old nemesis, McDonald’s, and corporate executives were looking for a way to turn things around. And the best way they saw to do that? Remodel their restaurants.
McDonalds had already been renovating thousands of its restaurants to match a trend toward brighter decors started by non-burger chains such as Panera Bread, Chipotle and Starbucks.
“You rarely see a McDonald’s that looks dated,” Accordino said at the time.
In exchange for getting first rights to available franchises, Carrols pledged to remodel its restaurants to a new look Burger King had designed featuring corrugated metal, exposed brick, modern hanging lamps, widescreen televisions, digital menu boards, and red and beige colors.
The deal also gave Burger King corporate a 15% stake in Carrols and two seats on its board of directors, tying the two companies at the hip.
“We wanted a close partnership,” said Accordino, who retired in 2022.
More purchases followed, including Carrols’ $238 million acquisition of 166 Burger Kings (and 55 Popeyes) from Cambridge Franchise Holdings LLC in 10 southern states in 2019. (The all-stock transaction gave Cambridge a 17% stake in Carrols, which Cambridge has agreed to sell to RBI in the 2024 deal.)
‘We got a good offer for it’
Today, about 150 people work at Carrols’ modest headquarters on James Street, providing payroll, accounting, human resources, information systems and legal services to its restaurants. Employees there can even monitor how fast cars are moving through its restaurants’ drive-thru lanes, where 75% of their sales occur.
Burger King spokesperson Kristen Viersen said in an emailed response to an inquiry from syracuse.com | The Post-Standard that Carrols’ headquarters will continue operating in Syracuse after the sale.
RBI will need Carrols’ experienced staff to oversee the 1,022 restaurants during their remodeling and transition to new franchise operators, a process that is expected to take up to seven years.
After the transition is complete, however, the restaurants’ new owners will presumably want their own staffs to oversee their operations, analysts said.
While Carrols may be disappearing, many longtime Central New York residents will retain fond memories of the company’s early days, when it ran its own burger restaurants.
Mention Carrols, and Syracuse Common Councilor Pat Hogan instantly recalls walking to the Carrols in Valley Plaza to get a bite to eat and meet up with friends in the 1960s.
“Carrols was the first chain-type burger place in Syracuse,” said Hogan, 73. “You earn a few bucks being a paperboy and you walk over and you get a milkshake and fries, you know, without your parents. I mean, it was sort of like ‘American Graffiti’-type stuff.”
For Melvin Slotnick, the end of the company his older brother started will be bittersweet.
“In a way, it’s sad because my brother built it up and was proud of what he did,” said Slotnick, 91. “But I guess if he was alive, he would say, ‘I must have done a good job because we got a good offer for it.’”
Rick Moriarty covers business news and consumer issues. Got a tip, comment or story idea? Contact him anytime: Email | X | Facebook | 315-470-3148
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