Hear that sizzle? It’s the sound of patty-flipping fast-food franchises taking a charbroiling from a new breed of gourmet burger businesses that continue to demonstrate quality over quantity is a winning strategy.
A look at the latest numbers reveals that better burger restaurants (BBRs)—defined as limited-service restaurants that focus on burgers at the core of their menu—are no fl ash in the pan. BBRs represent approximately $3 billion in annual sales within a $69 billion annual burger market, according to Chicago-based Technomic Inc. The BBR segment has-been growing at a double-digit rate each year over the past five years, despite the economic downturn. From 2010 to 2011, fast-casual burger restaurants increased units by 18.4% and sales by 20.8%.
The top two BBR sales leaders (see chart, p. 82), Five Guys Burger and Fries(more than 1,000 locations in 47 states and Canada and 1,500 locations underdevelopment) and Smash burger (200 stores in 29 states and four countries),grew sales by more than 24% and 71%,respectively, in 2011, Technomic reports
.In comparison, QSR burger chains, which includes fast food and fast casual, increased units by a mere 0.4% and saw sales up approximately 1%. Also, customer traffic at all fast-casual restaurants increased 8% over the same period.
Redefining Burgers
With their refreshingly basic but idiosyncratic menu offerings; focus on fresher, higher-quality ingredients; ability to personalize virtually any order; and relaxed restaurant feel typically without waiter service, BBRs have carved a profitable niche in the fast-casual dining sector in recent years.
“Money always flows toward opportunity, and Americans’ love for burgers is insatiable,” says Scott Hume, editor of BurgerBusiness.com in Chicago. “Fastcasual burger concepts proliferated at a time, between 2005 and 2010, when the U.S. restaurant industry was declining, in part because burgers are an affordable luxury.”
Accounting for much of their appeal is the caliber of the cuisine at BBRs: Seventy-four percent of consumers rank quality/taste of the meat or protein as the most important part of the burger, Technomic reports.“The secret to their success is generally strong unit economics with a good price point driving high-volume sales,” says Darren Tristano, executive vice president of Technomic. “The secret from the customer’s perspective is the gourmet ingredients, fresh made-to-order preparation and indulgence. At a time when healthy and wellness is trending, the indulgence factor from these chains continues to be strongly driven by crave ability.”
BBR stores are often smaller than fastfood counterparts, Tristano says, differentiated by a focused menu and emphasis on lunch and dinner vs. breakfast.
“They typically have counter service with 50% of sales for dine-in, whereas fast-food burger chains emphasize convenience and price value, with over 70% of their sales consumed off-premises,” says Tristano. “The smaller fast-casual chains are more contemporary and emphasize the dining experience, and have invested more inside their four walls of the restaurant to appeal to diners.”
BBRs also target a broad consumer base that is willing to pay a little more for the quality, flavor and taste of the product, he says. And casual-dining patrons are targeted via the concept of trading down to a lower price point (without a tip) and equal quality and experience to full-service chains.
More specifically, BBRs generally appeal to families and patrons ages 18 to 49, with a slight skew toward males and mid- to higher-income consumers in both major metro and more affluent suburban locations, says Bonnie Riggs, restaurant industry analyst for The NPDGroup, Port Washington, N.Y. Millennials, as well as baby boomers, are frequently targeted by these chains.
“Boomers, who fueled the rise of American fast food through the 1960s and 1970s, are now older and less inclined to buy a quick meal from a drive-thru window,” says Hume. “But they still like burgers. Fast-casual concepts provide the burgers older diners want in a less plastic environment.”
Unique flavors
You would be mistaken, however, to lump all BBRs together. Hume says each BBR chain offers something different and distinctive.“There’s no one single style, which is why the better burger segment always has room for growth,” he says. “There are retro concepts like Hwy 55 Burgers, Shakes and Fries (more than 100 restaurants in five Southeastern states); build-your-own burger concepts like Meatheads Burgers and Fries (10 locations in Chicago’s suburbs);and culinary concepts like Umami Burger (14 locations in southern California).And many of the new fast-casual burger establishments, like Tom & Eddie’s(five stores in the Chicago suburbs), offer beer and wine.”
Every burger concept has its “own something,” Hume continues. “Maybe it’s prep style like Smashburger’s smashed hamburgers, or the pick-your-toppings approach at Mooyah (48 locations in 10 states) or the local sourcing and artisan ingredients at Bargersville (39 stores in Washington and Oregon). If it clicks with enough people, you’re in.”
The better burger, says Peter Romeo, vice president of content for the foodservice group at CSP Business Media, “is more a product that delivers art than mechanization in that it’s something that embodies flair vs. being the end product of systems and procedures designed to promote conformity. [BBRs are] able to draw the crowds that they do because people want to eat a sandwich that’s fresher, less processed, made with better ingredients and more flavorful.”
Genuineness, quality and a heavy element of nostalgia, says Romeo, are drivers for this sector: “You see that in the retro feel at Five Guys, where employees wear those soda-jerk-style peaked caps.”
Creativity and cleverness are also appreciated by BBR customers, he says. Many restaurants allow regulars to order personalized products off a “secret menu”(e.g., three-hamburger-patty burgers),and some alert fans to menu changes and special seasonal offerings via social media instead of a glitzy Super Bowl ad.
Sharing Secrets
In an increasingly crowded market, BBR franchises are challenged to stand out and outshine one another. Case in point: Mooyah.
Like several competitors, the company, which expects to have 80 locations open by the end of 2013, features customizable burgers, myriad cheeses and toppings, 100% ice-cream shakes, and regular and sweet potato fries.
Alexis Barnett Gillette, director of marketing for the Frisco, Texas-based company, says her chain, unlike its rivals, also offers Jennie-O turkey burgers, Morningstar Farms veggie burgers, buns baked fresh daily in each store, and a bevy of options for placing orders (remotely via phone, mobile app, email and text, and in-store at the counter or via a paper form or kiosk).
“Burgers, fries and shakes are the great American meal,” she says. “We aren’t serving anything new, but we’re following the trend of making the old new again and the new better than ever before.”
Hans Hess founded Elevation Burger in Arlington, Va., in 2005 with the goal of offering a healthier alternative (100% organic, grass-fed, free-range beef ground on premises, and fresh-cut fries cooked in olive oil). The approach proved popular; today the chain has 36 stores in 11 states.
“I equate what we’re doing to surfing: riding out past all the breaking waves to catch it from behind,” says Hess. “True fast food requires you to bring your prices down, which means squeezing quality out of the product. We’re not competing with the McDonald’s of the world. We’re about giving customers greater control and offering healthier options.”
Mike Mirkil, vice president of marketing for The Habit Restaurants, the Irvine,Calif.-based owners of The Habit BurgerGrill (with 69 locations in California,Utah and Arizona), says what makes his chain different from other players in this category “is the unique char-grilling of our meats, which provides a great flavor.”
“And,” he continues, “while we do offer convenience and certainly value(the Charburger starts at $2.95), it’s our dedication to quality and making sure we always deliver one burger at a time that ensures our long-term success.”
Lessons for Retailers
What’s the moral of this story and the overarching lesson that even the Golden Arches is heeding?
“Giving customers the option to upgrade to better quality—not size—provides strong incentive for trial and continued use of higher-priced and higher-margin items,” says Tristano toTechnomic.
“The real lesson for anyone in retail to learn is that if you give quality, there’s a perceived value there that will allow you to charge exponentially more,” says Romeo. “Invest a dime more in quality and you can charge a quarter more for it.”
And antithetical to the grab-and-go c-store philosophy of short lines and fast service, “customers are willing to wait for quality. It can be a lot slower to get your food at a better burger place, but customers are more forgiving,” Romeo says.
And while foodservice continues to grow in the c-store channel, take note: Sixty-seven percent of consumers chose a QSR for a meal in 2011, compared to 7% percent who opted for a meal at a c-store, according to Technomic.
Hume of BurgerBusiness.com says research continually shows that consumers rate c-stores high on convenience but not as high on food quality and value. “I can name a dozen better burger joints that tell me the ranch where their beef comes from,” says Hume. “Could I find one c-store that did that?
“C-stores are masterful at merchandisingn on-perishables, but there’s an art to merchandising foodservice,” Romeo says.“Convenience operators could learn a lot by secret shopping these better burger places.”
Risks and Rewards
Can better burgers possibly boom in an environment in which sales of Slurpees, roller grill and breakfast burritos dominate? NPD’s Riggs will insist that c-stores and better burgers are strange bedfellows that aren’t meant to mate.
“The gourmet-burger customer is not the c-store customer, who is all about breakfast and snacks. There’s very limited traffic at lunch and less so at the dinner day-part (in a c-store),” says Riggs.“And when I look at data and see who the heaviest convenience-store users are, they’re not women or families with kids—they’re blue-collar, lower-income males ages 24 to 49.”
And although c-stores have made strides to provide higher-quality food products and greater variety in recent years, offering an upscale made-to-order burger menu may not work, Riggs says.
“It’s fine to offer more customizable foodservice choices—not necessarily burgers,” she says. “I’d recommend sticking to your core business, which is the morning meal and snacks, and knowing where your greatest opportunities are within those segments.”
Hume is more open to the idea of bringing finer foodservice choices into a convenience retail setting.
“C-stores are pretty good at grab-and go meal options. But I think they’re less conducive to sit-and-chat meals,” Hume says. “Upscale burgers fare better in an upscale environment. If c-stores want to sell better, pricier burgers, I say go for it, but there is a limit on what they can do.”
Gillette says implementing a “fresh, never frozen” concept, followed by many BBRs that don’t use freezers and often buy fresh beef from local/regional suppliers, would be an uphill climb for convenience stores, where prepackaged goods and long-shelf-life foods reign supreme.
Yet offering higher-quality meal replacements within c-stores can be done effectively. Case in point: Sheetz is one prominent c-store chain that has gotten attention for adding burgers to its made on-site food menu. And hundreds of Stripes stores in the Southwest exclusively offer Laredo Taco Company hand-rolled tacos, which feature tortillas made from scratch and fresh ingredients.
Romeo cites the success of the tasty Kirkland signature all-beef jumbo hot dog($1.50 with 20-ounce drink included),offered at the food court within Costco stores, as a winning example of a fancier quick-service food product that shoppers don’t mind standing in line for.
“The public is willing to entertain the possibility of a gourmet burger coming from a convenience store,” Romeo says.“It’s just a matter of c-stores being willing to take the risk.”
On the Burger Bandwagon
C-store owners who are entertaining the possibility of beefing up their foodservice menu need to engage in healthy due diligence first, says Tristano.
“Consumers may not be ready for gourmet quality at a c-store, so [convenience retailers] would have to build image and credibility in advance,” Tristano says.
That means changing consumer perception, says Gillette. “Consumers perceive c-stores as quick, inexpensive and on the go. (BBRs) are perceived as convenient and easier and less expensive than casual dining, but offering a comparable experience to standard casual dining,” she says.
To attempt to mimic that experience without offering sit-down dining in ac-store could be a risky proposition, “as gourmet burgers are meant to be enjoyed sitting down,” she says. “So if you’re going to consider [offering upscale burgers],take a close look at portability. How easy it is to actually eat the food?”
“Likely, a c-store will have to create a physical and mental separation of its retail store with a foodservice concept in order to take advantage of the better burger trend,” says Tristano. “The success of the better burger market has been predicated on dine-in occasions.”
Joining Forces
As a last resort, if you can’t bring it inhouse, you can try to bring it next door: In other words, co-brand and share space with or operate adjacently to a BBR.
For example, Back Yard Burgers, known throughout Tennessee and other Southern states, has teamed up with several c-stores and gas stations. Elevation Burger is in negotiations to partner with c-store/gas stations at two public rest-stop areas on major highways. And Subway restaurants have successfully partnered with many c-stores throughout the country for years.
“There’s no reason why an upscale burger partnership with a c-store couldn’t work,” says Hume, although he cautions that co-branding doesn’t always succeed, as evidenced a few years ago when Jack in the Box sold off its Quick Stuff c-store/gas stations it had opened next to dozens of its fast-food restaurants.
“Anytime you put two different concepts together and co-brand, you run the risk of there being more confusion than fusion and bastardizing both concepts,” Romeo says. “A smarter approach may be to share a pad rather than a common site.”
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