Fast-casual operators zoom in standout space
Smashburger’s growth plans match the size of its burger.
Fortified by a new equity partner that is Asia’s largest restaurant company, Smashburger is poised to continue its aggressive growth.
With 350 locations as of November, CEO Scott Crane says the sheer size of the $100 billion U.S. burger market offers Denver-based Smashburger plenty of white space to expand nationally.
Crane says Smashburger’s agreement in October to sell 40 percent of the company to Jollibee Foods Corp. for $100 million will provide the chain resources to expand domestically and internationally. The Philippines-based Jollibee operates and franchises more than 3,000 restaurants worldwide.
Smashburger isn’t the only fast-casual chain growing at a sizzling pace, easily outperforming industry peers. Naming a few, brands like Panera Bread, Five Guys, Zaxby’s, Wingstop, Qdoba Mexican Grill, Moe’s Southwest Grill and Einstein Bros. Bagels are among the largest fast-casual gainers in sales and unit growth, according to the Franchise Times Top 200+ ranking in the October 2015 issue.
All told, sales in the fast-casual sector totaled $14 billion in 2014, up a strong 10.6 percent from 2013, while unit growth jumped 8.2 percent to 10,234. In contrast, sales in the QSR category grew only 1.7 percent to $204.8 billion and unit growth rose 2.2 percent to 152,679. In the family/casual segment, sales rose 3 percent to $32 billion and unit growth was up 0.6 percent to 14,622, according to FT’s Top 200+.
Everything from innovative food offerings to online ordering and delivery service to build-your-own meals are among concepts fast-casuals are using to differ from rivals, observers say.
For Smashburger, Crane anticipates systemwide sales of about $330 million to $340 million this year, up about 30 percent from last year. For 2016, he says the company has budgeted to boost unit growth by about 20 to 25 percent and hopes to generate revenue growth of 25 to 30 percent.
Anticipating very strong sales for the new year, multi-unit Smashburger franchisee Irwin Kruger likes the improvements made since Crane became Smashburger’s leader in 2013. Kruger owns five Smashburger stores in New York’s Long Island area and plans to add a sixth in January 2016. He left McDonald’s after 42 years as a franchisee to open his first Smashburger in 2012.
Kruger says Smashburger’s operating platform of delivering food in under six minutes to customers at their tables is giving the franchise a competitive advantage. “It’s really as close to a full-service experience that you can get within the fast-casual setting.”
He says offering the “better burger,” four varieties of french fries, grilled and crispy chicken and Haagen-Dazs milk shakes have been well accepted by consumers. Offering a free side order like chili or fried pickles with meals has been a hit, Kruger adds. “We have a great system with delicious-tasting food and very competitive pricing.”
Atlanta-based Moe’s Southwest Grill is in two strong segments, both fast-casual and Mexican, says Steve Corp, senior vice president of franchise sales.
“We’re a hot concept that resonates with consumers and franchisees alike with a casual dining-like experience with development costs closer to QSR.”
Flush with cash flow from existing stores, Moe’s Southwest Grill multi-unit franchisee Larry Wilson plans to use those funds primarily to open six or seven new stores this year.
Those stores will join 19 that Wilson owns in New York, Pennsylvania, Maryland and Ohio. From 2011 through 2014, Wilson is benefiting from sales at his Binghamton, New York-based franchise, which have risen an average 18 percent per year. He says the stores have been rewarded with strong sales by offering customers great service, quality food and clean restaurants.
“We’ve been doing an incredible amount of business with families and quite a lot with millennials,” Wilson says. But he expects sales for 2015 to only rise 3 to 4 percent. He attributes that to sales reaching a peak and sticking to a plan since 2013 to not raise prices. “We’ll focus on offering quality service to attract families and young professionals in 2016,” Wilson says.
Signing up for pizza
Calling itself the pioneer of fast-casual pizza, MOD Pizza has raised $75 million since it was founded in 2008, from private investors and private equity fund PWP Growth Equity, to finance rapid growth. The Bellevue, Washington-based chain expects to double its number of locations and triple sales in 2015, with about 100 locations and sales of $60 million. By late 2016, CEO Scott Svenson says another 100 locations should be added. It had 88 stores in 14 states as of November.
MOD, meaning “made on demand,” allows patrons to create their own pizza and salads from more than 30 featured toppings, or they can order from its menu.
The brand recently announced its first international expansion, with Five Guys operator Sir Charles Dunstone to open 25 MOD locations in the United Kingdom.
MOD also announced expansion plans with three different operators, Rich Connolly, Garyen Denning and Scott Womack. Connolly, an existing franchise partner who is developing MOD stores in South Carolina and parts of Georgia, will open units in Northern Florida. Denning of Cool Dough Development agreed to bring 20 new MOD locations to Kentucky, Southern Indiana, as well as Cincinnati and Dayton, Ohio. Womack of Womack Restaurants has agreed to develop 25 locations in Columbus, Ohio, and Kansas City, Missouri, over the next five years. MOD began franchising in 2013 to complement its company-owned growth plan.
MOD Pizza franchisee Mark Schostak and his business partner Bill Angott have agreed to open about 25 locations in Michigan. As of November, they had three open in the Greater Detroit area. Schostak was attracted to MOD for a number of reasons, including its progressive approach to partnering with franchisees. “We felt it was critical in a new restaurant space,” in this case fast-casual pizza, “for the franchisor to be building a significant base of corporate locations simultaneously as they were growing their franchise base.”
He added the partners felt MOD had the most differentiated concept with a best-in-class pizza product, a people-first MOD Squad culture and restaurant store/experience that stood out.