Smashburger is exploring strategic options, including a possible sale or initial public offering, as it continues its quest to become a national fast-casual player, new chief executive Scott Crane says.
The Denver-based better-burger chain has not yet determined its path, said Crane, who was formerly president of Smashburger and became CEO in November after his predecessor Dave Prokupek departed without explanation. Crane joined the company six and a half years ago, when Smashburger opened its second location and has a background in operations, which is good news to the chain’s franchise operators.
A strategic review conducted by North Point Advisors LLC and Bank of America Merrill Lynch was simply about “putting options on the table,” and looking at the “when and if and how,” Crane said.
“It was more of a, ‘Here’s where you’re at; here’s where you can be; and here’s what you have to do to get here or here or here,’” he said. “It was an overview of the options.”
Going public with an IPO is “always on the horizon as a possibility,” said Crane, but is not the company’s focus. Last year, Smashburger closed on a $35 million round of financing with Golub Capital to fund ongoing growth, he noted, “So we’re not in need of capital.”
In 2014, the chain plans to push beyond the 300-unit milestone, Crane told Nation’s Restaurant News last week while in Los Angeles for the opening of Smashburger’s 252nd location.
Smashburger expects to add 60 to 70 new restaurants this year, Crane said, about 30 of which will be company owned, in keeping with the roughly 50/50 balance of corporate and franchise locations.
In April, Smashburger will open in Manhattan for the first time, and it plans to fill in corporate markets such as Los Angeles, Washington, D.C., Chicago and the San Francisco Bay area. Currently, Smashburger has restaurants in 32 states and four foreign countries, including Canada, Kuwait, Saudi Arabia and Costa Rica.
Meanwhile, the chain is focusing on several operational initiatives to enhance the customer experience, Crane said, such as improving speed of service with the goal of shaving a minute and a half off the current seven-minute service time.
Online and mobile ordering is also on deck to roll out, and the chain is testing a call-ahead ordering system.
The menu, which was streamlined last year to reduce complexity, will see some new additions, such as the return of the Spinach & Goat Cheese burger, chicken sandwich or salad, and Fried Pickles, which were relegated to the secret menu. A popular limited-time Salted Caramel Shake will join the permanent lineup.
In addition to domestic growth, Smashburger is ramping up international efforts. This year the chain will open in Dubai, Venezuela, Panama and El Salvador, and it is actively looking for franchise partners or working on deals in Mexico, Puerto Rico and the United Kingdom, Crane said.
Smashburger ended fiscal 2013 with $228 million in systemwide sales. Crane projects the chain will hit about $350 million in 2014. Units are averaging about $1.1 million in annual sales in about 2,000 square feet.
Race for national dominance
In the race for national dominance in the better-burger category, “It’s really Five Guys and us, and we do things very differently,” Crane said.
Five Guys, known for its wide range of toppings and build-a-burger format, is winning the race in terms of unit count, with 1,184 U.S. locations.
Smashburger offers customization as well, along with signature “smashed to order” burgers that cater to regional tastes, salads, Häagen-Dazs shakes, and local craft beer and wine.
The brand is growing its emphasis on freshness and health, Crane said.
“That’s something we don’t do enough of communicating,” he noted. “We use all-natural Angus certified beef and all-natural cheeses. We use Häagen-Dazs ice cream and make hand-spun shakes. They’re not made in a machine. We are going to do a better job of telling that story.”
The company is currently testing a gluten-free bun and recently became the first restaurant chain to offer non-bottled Honest Tea beverages. It is also looking to make healthful tweaks to kids’ offerings, said Crane.
Smashburger was founded in 2007 by Quiznos co-founder Rick Schaden. The chain is owned by Denver-based Consumer Capital Partners, a private-equity firm led by Schaden, who is also a primary shareholder of Consumer Concept Group, operator of the recently launched fast-casual Live Basil Pizza and Tom’s Urban brands.
The recent opening at Los Angeles’ sprawling LA Live complex downtown included all three concepts in adjacent spaces that Crane called a “food pod,” where guests can choose between the fast-casual Smashburger or Live Basil Pizza and the full-service comfort food of Tom’s Urban.
Crane says Smashburger has potential not only in the better-burger space, but as a fast-casual concept competing with the likes of Panera and Noodles & Company.
“Burgers are far and away the largest segment, and fast-casual burgers is such a small percentage of that, to me, the white space is almost immeasurable,” said Crane. “Fast casual is just the way people are eating now. I think this is going to be a great company for the next 15 to 20 years.”
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