It hasn’t quite been a year since Shannon Hennessy took over as CEO of The Habit Burger Grill, but she certainly hasn’t wasted any time coming up with an ambitious plan for the made-to-order, fast casual concept.
“We want to be the category leader in the better burger space, which is this exciting, fast growth category,” Hennessy said during a recent interview. “It’s a race yet to be won because most of the folks who are playing in it are a pretty similar size and scale to where we are.”
The Habit has around 370 restaurants in 14 states, including a presence as far north as Boston and as far south as Florida. That said, it is a California-based company with most of its locations on the West Coast. By comparison, Five Guys finished 2023 with just under 1,500 locations, while Shake Shack had about 335, Freddy’s had about 515, and Smashburger had about 210, according to Technomic Ignite data. Just Freddy’s and Shake Shack grew at a faster clip than The Habit last year, which was still above an 8% pace.
As The Habit looks to continue and even ramp up that pace, infilling existing markets is the company’s initial priority. Restaurants do better when you get to scale in a market, Hennessy said. This year, the chain will also focus on new, adjacent markets.
“There’s lots of white space for us to fill in on the East Coast and in between our West Coast stronghold and the East Coast footprint that we have,” Hennessy said. “The concept can work anywhere; we’re just trying to build it out smartly and make sure expansion restaurants are successful.”
She believes that will be the case because of the concept’s “feel good proposition” created by its made-to-order, flame-grilled model. Perhaps its biggest differentiator, however, is that it’s backed by the world’s largest restaurant company; The Habit was acquired by Yum Brands in March 2020, joining heavyweights KFC, Taco Bell and Pizza Hut on the company’s roster.
The chain has wasted little time leveraging Yum’s learnings and resources. In fact, Hennessy came to The Habit from KFC, where she served as CFO of its global division. Armed with that experience, she’s spent the past several months working to get to “industry-leading payback” timeframes at The Habit.
“That’s the number one thing that can accelerate growth and so we’re really leveraging the scale and skill that we have to be able to drive improvements in restaurant margin,” Hennessy said.
The Habit’s restaurant margin was up by 380 basis points from Q4 2022 to Q4 2023. In Q1, margin trends continued to improve and were 60 basis points higher year-over-year. Driving that improvement is what Hennessy calls, “same magic, more margin.”
“We're really focused on not taking away from what's made The Habit so special historically and that’s the quality of the food, that's the team member experience that helps us deliver consistently in the restaurants,” she said. “But what we can do is figure out different ways of doing those things to be able to drive better economics.”
As part of Yum, the chain now works with a purchasing co-op, for instance, as well as different suppliers. It has more access to innovation and has been getting more sophisticated on staffing and scheduling. Technology is playing a big role in all of this work. The Habit is part of Yum Brands, after all, which has spent the past several years developing robust systems to not only simplify consumer experiences, but also operations. In Q4, 38% of The Habit’s sales came through digital platforms, so the company is focused on innovating as “an all-channel brand,” testing applications like conversational ordering, AI at the drive-thru, and mobile-pickup lanes. Its first mobile pick-up location opened in Garden Grove, California, in December. Hennessy said it’s too early to provide a lot of color on the sales side from that location, but it has been well received by customers.
“The objective of the test was not really to figure out how much we sell through it, but to run the water through the pipes, make sure the technology works, make sure we know how to do the customer experience and how it works for operators,” she said. Guest feedback, she adds, has been better than the systemwide average, including for ease of ordering and speed of service.
“That’s an interesting clue that something is there,” Hennessy said. “You will see us playing a bit more with a mobile pick-up lane in the near future.”
The Habit is also testing a smaller prototype that is about 20% smaller than its traditional prototypes, and is looking at kitchen designs and equipment specs, again, pulling learnings from its sister brands. It’s early days on how big any of these initiatives will become in the system, but Hennessy is optimistic.
“Another area we’re looking at is build cost. It’s like picking off the money tree. We’ve got lots of opportunity,” Hennessy said.
The California equation
As The Habit continues to find such opportunity, California remains a priority market, and in fact about half of its 35 openings last year were in the state, despite the minimum wage hike that went into effect April 1.
“It’s a big disruption and we’ve been through a lot of disruptions throughout the past couple of years, but we are a California founded company with a big California footprint and California is an important piece of our future as it has been an important part of our history,” Hennessy said.
The Habit put a plan in place to navigate the legislation, which has forced the company to become more creative, Hennessy said. She has visited dozens of California restaurants since, noting that “it feels like business as usual.” She doesn’t think it will impact the company’s growth or her personal goal, which is to become a billion-dollar brand in the near term. The Habit finished 2023 just under $700 million, according to Technomic.
“This is a moment where strong concepts can win,” she said. “To me, it’s an opportunity in addition to the challenge.”
Contact Alicia Kelso at [email protected]