In 2011, Hamburger Chains Make Big Push Locally

Technomic Report

RESTAURANTS: In 2011, hamburger chains make big push locally

The year began with Roberto Vigilucci, who built a tiny chain of popular Italian cuisine restaurants in San Diego’s County’s coastal cities, tightening his expansion plans by pulling out of an Oceanside restaurant and postponing plans to open a delicatessen market in Carlsbad.

Vigilucci remains in a holding pattern on expansion plans, though the restaurant industry seems poised for a rebound in 2012 despite closings of multiple Carlsbad-owned Carrows restaurants throughout the region this year, a bankruptcy filing of San Diego’s Pat & Oscar’s, and the closing of the prominent Acapulco Mexican Restaurant in Escondido.

Tracy Pedrazzani, a Vigilucci’s spokeswoman, said the chain saw a 40 percent increase in parties booked in the last three months of the year. The biggest increase came from corporations and “business parties,” she said.

Overall, sales picked up modestly in 2011 at locally based restaurant chains, including Rancho Bernardo-based Garden Fresh Restaurant Corp., Carlsbad-based Daphne’s California Greek and others.

“It was a challenging year,” said Michael Mack, the chief executive of Garden Fresh Restaurant Corp. who founded the company in 1978. The chain is made up of 112 salad-buffet style restaurants in 15 states that operate under the Souplantation and Sweet Tomatoes brands. It rolled out smaller Souplantation Express eateries this year to cater to hungry crowds near food courts, airports and college campuses.

“We continued to see a lot choppiness and uncertainty on the part of our customers,” Mack said. “A lot are wrestling with purchase decisions over how much they want to dine out versus making food at home.”

The sluggish economy continues to dampen growth somewhat. “Here’s the good news. I don’t think the economy will get a lot worse. Housing can’t be much worse. That’s the good news. The economy will continue to grow 2 to 3 percent (annually),” he said.

Bill Trefethen, the CEO of Daphne’s California Greek, also said sales were picking up —- estimated at 3.5 percent over the past year. “We rebranded and remodeled,” said Trefethen, who turned the old Daphne’s Greek Cafe into “Daphne’s California Greek” and began making over the 60-store chain into a hipper concept with piped-in music from the Dave Matthews Band and other pop artists, new colors and even dumping Coke machines for Pepsi dispensers.

“The economy is kind of sideways,” said Trefethen, who hopes to overhaul the look of the chain’s remaining restaurants by the spring.

The big story in 2011, however, was the arrival of hamburger chains throughout San Diego County and Southwest Riverside. The pace of burger joints opening up has been unrelenting.

In August, Virginia-based Elevation Burger, a tiny chain of 20 restaurants trying to muscle into the $65 billion, national hamburger market, opened its first franchise in the western United States in the suburban Bressi Ranch area of Carlsbad. Lorton, Va.-based Five Guys Burgers and Fries, with more than 750 locations, stormed the region with new restaurants opening this year in Encinitas, San Marcos and Vista.

Denver-based Smashburger, with more than 100 locations, opened stores in Del Mar, La Jolla, Oceanside and San Diego. It has commitments from its franchise partners to build 463 units, and is on target to have 500-plus stores in the next few years.

There also is Culver City-based The Counter; San Diego-based Burger Lounge; and the privately held Islands Restaurants L.P., a 50-plus store chain of tropical-themed eateries with headquarters in Carlsbad that has felt competitive pressure from a surge of gourmet burger rivals coming to compete on its turf. Executives with Islands declined to comment on their plans.

Irvine-based Habit Burger Grill Inc., which opened its first San Diego County fast-food store in Mission Valley three months ago, and another in Carmel Valley last month, plans another by midyear in Solana Beach and its first for Riverside County sometime in 2012 for Murrieta, according to Russ Bendel, president and chief executive of Habit Burger, a fast-casual chain famous for its charbroiled hamburgers, specialty sandwiches, salads and handmade shakes and malts.

A quirky treat that Habit Burger serves up: The chain jets in sushi-grade tuna from Fiji in the South Pacific Ocean to Los Angeles International Airport three times a week.

Habit Burger opened its first restaurant in Santa Barbara nearly 42 years ago, and took 22 years before it opened a second. At the end of 2007, private equity firm Greenwich, Conn-based KarpReilly LLC invested in Habit and began opening company-owned stores throughout Southern California, and adding three in the Phoenix area. Today, the Irvine-based chain has more than 50 locations.

“At the time they (KarpReilly) acquired the company, it had 16 restaurants. Over the last three to four years, we have steadily grown and accelerated growth,” Bendel said.

“To enter San Diego (County), we wanted to make sure that we entered with premium locations. It’s taken us a little bit of time. But we are patient,” Bendel said. “We are not franchise driven. We are under no pressure from franchise agreements to open ‘x’ number of stores in ‘x’ amount of time.”

KarpReilly also has investments in the Burger Lounge, Elephant Bar, Mimi’s Cafe and Marie Callender’s.

Darren Tristano, executive vice president of Technomic Inc., a Chicago-based restaurant industry consulting firm, is forecasting growth in the fast-casual and full-service restaurant sector in 2012, the first time since the Great Recession reared up.

He’s forecasting 2.5 percent growth next year. The reason: The employment picture has improved somewhat in the U.S.

He sees some older full-service chains continuing to struggle, including Catalina Restaurant Group, the Carlsbad-based parent of Coco’s Bakery Restaurant and Carrows Restaurants. Catalina runs the 67-store Carrows chain and the 121-store chain of Coco’s eateries. Islands also has been challenged, Tristano said.

“It’s a battle,” he said. Putting aside McDonald’s, Burger King and Wendy’s, the $1.6 billion “better-burger” market is dominated by Five Guys with $700 million in sales, followed by Smashburger with $69 million, The Counter with $49 million and all the others battling it out for the lower-rung spots, according to Tristano. The better-burger market is expected to see double-digit growth in 2012, reaching more than $2 billion in annual revenue as an industry in 2012, he said.

“But it’s hard for me to say. Better burgers still seem to be in their infancy stage in terms of growth,” Tristano said.

View the full article on North County Times

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