While the segment is dominated by Virginia-based Five Guys Enterprises LLC, which has more than 1,100 outlets, more than half the players had fewer than 10 locations each at the end of 2011, according to Technomic Inc., a restaurant research firm.
As the segment preps for a 2013 growth spurt, questions remain about whether there’s room for all brands to prosper.
Executives with Frisco-based Mooyah Burgers, Fries and Shakes, which plans to boost its restaurant count this year by nearly 70 percent, say maybe not. But they expect Mooyah to be among the survivors.
“Typically high growth of the segment is going to cause some of those smaller brands to go away,” said Bill Spae, who took over this month as president and chief executive of Mooyah.
“Mooyah has tremendous growth opportunity. … Now it’s a question of where do we grow, how do we grow and how aggressive do we want to grow.”
With an average tab of up to $15, the better-burger niche is pricier than the typical fast-food burger but generally offers fresh, made-to-order meals with better ingredients. Drive-throughs are absent and interiors are designed to be distinctive and edgy.
Based on 2011 estimated revenue of $21 million, Chicago-based Technomic listed Mooyah as the 13th-largest chain in the segment and the largest player based in North Texas. Houston-based Fuddrucker’s, launched by Dallas restaurateur Phil Romano, took home the silver.
But for 2012, the No. 2 spot, in terms of locations, may well go to Denver-based Smashburger. That chain expects to open its 200th location within weeks and counts Texas as the state with the most locations – 28.
Twelve Smashburger locations are in the Dallas area, and five more – including one at Dallas/Fort Worth International Airport – are expected to open this year in North Texas.
Launched in Plano in 2007, Mooyah is the brainchild of Tin Star’s Rich Hicks and Todd Istre, founder of Boudreaux’s Cajun Kitchen. It has 48 restaurants, including 33 in Texas, 22 of those in North Texas.
The plan is to end 2013 with about 80 stores, Spae said. That includes more locations in Texas and a move into territories including Washington, D.C., Florida and North Carolina.
“We’re a chain that’s going to be a very strong regional chain to start and then … we’ll make the decision whether we push into every state or the majority of states,” said Spae, formerly chief operating officer of Cici’s Pizza.
The growth plan will be “based on where we’ve been successful and what that [neighborhood] profile is. If that profile indicates we can make it out into 45 or 48 states, then certainly we will head in that direction,” he said.
“But if the profile indicates that we ought to be a very strong regional chain that occupies 10, 15, 20 states, whatever that message is, that’s the direction we will take.”
Tom Ryan, founder of Smashburger, said his chain expects to add 60 to 80 locations in 2013, about a 35 percent bump over the growth of 2012.
That puts Smashburger in heads-up competition not only with other better-burger chains, but also other fast-casual chains such as Panera Bread and Chipotle.
A tiny slice
But Ryan noted that more shopping center developers are seeking better-burger brands.
Even with the current growth pace, higher-end burgers command only a tiny slice of the overall burger business, which remains dominated by McDonald’s.
Within the $70 billion burger segment, not including sit-down restaurants, the fast-casual burger segment accounted for an estimated $3 billion in sales last year, said Darren Tristano, executive vice president of Technomic. The figure could be $5 billion in the next five years.
Growth within the segment is not a given.
Nashville-based Back Yard Burgers Inc., listed by Technomic as the fourth-largest fast-casual burger chain in 2011, emerged from bankruptcy protection this week, months after its October filing.
Same-store sales at company-owned restaurants, a key measure of chain health, fell 5.7 percent in 2011, according to a report in Restaurant Finance Monitor.
“Back Yard has had problems for years, and its current troubles are not entirely surprising, given the immense competition for its higher-end burgers that has emerged in the past few years,” the report said. “Still, the company’s problems do give us some reason to wonder whether the better-burger boom is hitting a wall.”
Officials with Back Yard Burgers could not be reached for comment.
Tristano acknowledged that, with the growth of national and regional chains and the entry of more independents, “the better-burger category is becoming more saturated in larger markets that saw early expansion.”
Many midsize and smaller markets still have growth space, he said.
Chain executives said their challenge is to find ways to stand out among their better-burger brethren.
Mooyah, which serves no alcohol, promotes its family atmosphere, which includes doodle boards for children to play with. Spae said the chain’s growth has opened up more marketing opportunities, which leads to increased awareness.
Smashburger serves beer. Ryan will be in town next month to help launch a joint promotion with Deep Ellum Brewery to pair craft beers with burgers in the D-FW Smashburger locations.
Though the “burger bubble” may be bursting in some markets, Tristano said, there is still opportunity for the better-burger brands as customers of the big three fast-food burger chains trade up for quality and as full-service restaurant customers trade down for price.
“Chains like Mooyah can have success through differentiation and successful site selection,” he said, adding that chains such as Smashburger, with a menu that includes dessert and chicken, can pull from a broader audience.
“Older, less contemporary brands like Back Yard Burgers,” he said, “will need to find a way to revitalize the brand.”
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