At a time when growth among national burger chains is slowing, West Coast-based The Habit Burger Grill is ramping up expansion with two new franchise deals and plans to seed development on the East Coast with company locations.
John Phillips, The Habit Burger’s vice president of franchising, said Monday that the Irvine, Calif.-based chain has signed its first two franchise agreements that will bring the brand to new markets of Las Vegas and Seattle. In addition, the company will open its first location on the East Coast this summer in Fair Lawn, N.J., the first of three planned for the region. Next year the company will also start building in Northern Virginia.
The goal is to work out supply and distribution efficiencies on the East Coast, as well as establish a training restaurant and build brand awareness to help ignite franchise growth in the region. The brand is already well known in the Golden State for its grilled Charburgers and diverse menu that includes grilled albacore tuna, sliced tri-tip and pastrami sandwiches, salads and ice cream desserts.
“We’re very bullish because of where we play in the better-burger segment,” said Phillips. “We have a diversified menu and a value play. And value just doesn’t go out of style.”
Habit Burger was founded more than 35 years ago near Santa Barbara, Calif. In 2007, the then-23-unit chain was acquired by private-equity firm KarpReilly LLC, which has been evolving the brand into a more contemporary, fast-casual concept.
Though Habit Burger has maintained an average per person ticket of about $7.70, which is in line with the quick-service burger players, the customer experience and menu give the brand a more fast-casual positioning, explained Phillips.
Sales in the limited-service burger segment contracted somewhat in 2013, according to market research firm Technomic Inc. Burger chain sales in the U.S. totaled more than $72 million, but that indicated nominal growth of only 1.2 percent. When adjusted for inflation, the segment’s sales declined.
Quick-service operators like McDonald’s, Wendy’s and Burger King showed weak U.S. performance, while the much smaller fast-casual chains showed sales growth. Still, more mature brands like Five Guys Burgers and Fries, which led the better-burger players with sales of $1.1 billion and 1,120 domestic units in 2013, also showed a slowing of growth, with sales rising only 5 percent compared with a 14-percent increase the prior year.
Habit Burger’s sales grew by 35 percent over the prior year, according to Technomic’s census, but that paled in comparison to the 40-percent growth seen by better-burger competitor Shake Shack and 178-percent growth by BurgerFi. Denver-based Smashburger, with 252 units, recorded sales growth of 32 percent in 2013, according to Technomic.
Phillips said Habit Burger has had positive same-store sales since its second unit opened in 1997. The chain ended 2013 with $120 million in systemwide sales, based on a 53-week year, with average unit volumes reaching $1.6 million.
The 94-unit chain has pushed into Utah and Arizona, and recently opened its first nontraditional location on the campus of University of Southern California, or USC, followed by two more nontraditional locations at the Graton Resort & Casino in Northern California and the campus at San Diego State University.
In 2014, the chain expects to open about 26 locations, including the first in the two franchise agreements. In Las Vegas, franchisee 12 Ventures LLC is planning 15 units, which are scheduled to open within seven years. In Seattle, franchise operator PBUH Holdings LLC is planning to open 25 units scheduled to open over the next 12 years.
For the company locations on the East Coast, Habit Burger is borrowing a page from full-service restaurants by using market partners. The Fair Lawn restaurant, for example, will be opened with market partner Gary Keurajian, though his stake was not specified.
Phillips said the use of market partners has proven to be a successful model as the chain grew into Arizona and Utah.
“It tends to work better than trying to run things with a district manager,” said Phillips. “The partner is vested financially, as well as emotionally and physically. They have some skin in the game.”
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