Fatburger Corp. has been through lean times. But the iconic L.A. hamburger chain is starting to sizzle again.
In recent years, it’s turned most of its company-owned restaurants into franchises and dealt with debt problems. It also added stores and pushed into international markets.
Now, Fatburger is turning up the heat. The company announced last month that it has forged a partnership with Puji Capital Ltd., an investment firm in Shanghai, China, to identify real estate and food service partners to open as many as 65 restaurants in China, Taiwan and Singapore. That alone would be a 50 percent expansion.
It’s a significant partnership for the company, said Andy Wiederhorn, chief executive of Fatburger and its Beverly Hills holding company, Fog Cutter Capital Group Inc.
“Puji represents many of Asia’s wealthiest families, and they control a tremendous amount of retail real estate,” he said. “Partnering with them gives us the ability to source locations and city-specific development opportunities that would take a lot longer to achieve by knocking on doors location by location.”
The burger chain already has grown more than two-fold since Fog Cutter bought it in 2003. Fatburger then had 40 restaurants, all in the western United States. Now, the chain has more than 120 in 15 countries around the world.
In addition, Wiederhorn said the company has development deals in the works to expand Fatburger further in the Middle East and in at least 10 more countries. The company also has plans for domestic expansion, most notably in New York. Many are not far enough along to be announced yet, but if all the planned openings occur – including the 65 in Asia – Fatburger would have about 365 restaurants in all.
Why the emphasis on expanding abroad? Wiederhorn said it’s easier to get funding.
“For the last five years or so, capital has been very hard to come by in the United States, because banks weren’t really lending,” he said. “It was a struggle to grow domestically at an acceptable pace. But in the Middle East and Asia, capital was still readily available.”
There might be other considerations, too. Restaurant consultant Michael Dubin of Dubin & Associates in Santa Monica said increased domestic competition was probably another factor for Fatburger.
“If you go overseas, you don’t have to deal with all that. You don’t have that competition,” he said. “You’ve probably got McDonald’s and Burger King, but those are different food experiences than with Fatburger.”
Mr. Fatburger
Fatburger got its unofficial start in 1948 in South Central Los Angeles outside the late Lovie Yancey’s home, where her boyfriend grilled big burgers in the front yard. The operation was called Mr. Fatburger after her beau. After Yancey dropped both the “Mr.” and the man behind it, she incorporated the business in 1952 to grow it on her own; the hamburger chain marks its 60th anniversary this year.
Yancey sold the chain in 1990 to a group of investors, including Chris Blackwell, the music producer who founded Island Records. Blackwell and his partners sold the chain to Earvin “Magic” Johnson’s Johnson Development Corp. in 2001. Two years later, Fog Cutter bought Fatburger from Johnson for about $7 million.
But Fog Cutter had no experience operating restaurants. The holding company had previously invested such things as commercial real estate and corporate debt.
Wiederhorn said learning to manage the restaurant chain, which at the time was about 50 percent franchised, was difficult. Economic factors such as rising food costs made the learning curve even steeper.
“It took us a while to understand how challenging running both your own restaurants and a franchise operation at the same time was,” he said. “Then, on top of that, we were saddled with the challenges brought on by the economy.”
As a result, Fatburger defaulted on a couple of loans and in 2009 put its company-owned California and Nevada restaurants, which by then had grown to 26, into Chapter 11 bankruptcy reorganization.
During reorganization, the company decided to convert the chain to a 99 percent franchised restaurant system. To do that, the company sold all of its company-owned stores that were in bankruptcy in the two states, and reorganized other obligations, including real estate and debt.
Wiederhorn said being fully franchised makes the most financial sense for Fatburger.
“It has enabled us to focus all our resources on franchise development and supporting the people operating the restaurants rather than trying to run our own restaurants at the same time,” he said. “A franchisee can more economically operate these restaurants than corporate can.”
The company has also grown revenue.
Wiederhorn said the company expects more than $100 million in systemwide sales this year, compared with $82 million last year.
Most of the chain’s stores are on the small side, with only about a dozen tables. Prices range from about $3 for a small burger to $10 for its largest burger. Fatburger is also known for its onion rings and hand-scooped ice-cream shakes.
International appetite
Fatburger opened its first overseas corporate restaurant in Macau, China, in 2007. The second international Fatburger restaurant – a franchise location – opened in 2008 in the United Arab Emirates in Dubai.
Both restaurants have become among the chain’s top 10 performing locations worldwide.
Matthew Haller, spokesman for the International Franchise Association in Washington, D.C., said that solid international performance is why 75 percent of IFA members either already have units overseas or have plans to invest in expanding overseas in coming years.
“There’s just such a strong demand for American brands and American products, and certainly burgers are as American as it comes,” he said.
But while hamburgers are gaining popularity around the world, Wiederhorn said Fatburger also caters to local palates. In China, for example, the chain offers diners a scoop of rice with their meal. In Canada, gravy often tops the French fries.
“You have to adapt your products and dining experience to fit local taste profiles,” he said.
But as Fatburger grows overseas, other U.S. burger chains are eyeing the same markets. Lorton, Va.-based chain Five Guys Enterprises LLC, for example, has said it is considering opportunities in Asian, European and Middle Eastern markets.
Wiederhorn said he thinks Fatburger is prepared to handle competition because the chain has already laid the groundwork to expand outside the United States.
“We see competition following us from the U.S. into the Middle East,” he said. “Fortunately, we’re years ahead of everybody. We’re welcoming the competition to differentiate who we are and stand out.”
