Fat Brands CEO Andy Wiederhorn isn't letting the novel coronavirus crisis sway his aggressive acquisition and expansion plans for 2020 and beyond.
The company's impending purchase of Johnny Rockets for $25 million, announced last Thursday, followed years of acquisition discussions with previous owner Sun Capital Partners, Wiederhorn said in an email.
"COVID-19 is a temporary crisis and we are buying Johnny Rockets for the long term," he said.
Fat Brands' portfolio mix of casual and fast casual brands has allowed the restaurant company to remain resilient, Wiederhorn said, despite the economic upheaval of municipal dining room closures and social distancing mandates across the country. And though the addition of Johnny Rockets brings the restaurant group's brands assets to a casual dining majority (5 out of its 9 restaurant chains), Wiederhorn is confident that the experienced-focused, '50s-style diner will round out its burger offerings and give franchisees more diversity within that subsegment.
“As of now, we have Fatburger, which is an urban brand, and Elevation Burger, which is a very healthy and organic burger brand. As a theme restaurant, Johnny Rockets fits into this perfectly," he said.
Johnny Rockets' restaurant locations, however, could prove to be obstacles in a post-pandemic environment. At the beginning of the year, the burger chain said it was looking to further expand its reach in casinos, theme parks, cruise ships and airports — industries that aren't expected to have a swift recovery.
But Wiederhorn sees immediate growth opportunity in allowing franchisees to scale Johnny Rockets through virtual restaurants via other Fat brands, he said.
“We are always looking for opportunities to grow and innovate. Ghost kitchens are a great way to do this as it allows us to offer our concepts in new territories at a faster rate," he said. "Similar to ghost kitchens, we have also seen great success with our virtual restaurant concept where franchisees will operate brands out of existing physical restaurant locations and provide a separate menu offered only via third-party delivery service providers.”
In an interview last summer, Wiederhorn said its virtual restaurants operate out of the back-end of a host restaurant format, appearing only on diners' mobile delivery apps, to give franchisees more revenue opportunities as the restaurant market contends with pricey real estate costs. This spring, Fat Brands also teamed with ghost Chicago-based ghost kitchen platform Epic Kitchens in a development deal to launch 19 ghost kitchens, in addition to its virtual restaurants, in Chicago, Boston, Philadelphia and New York.
Fat Brands also plans to garner overhead savings for Johnny Rockets by integrating the diner into the company's existing structure of marketing, operations and legal, and to modernize the casual restaurant's menu with a plant-based burger option and potentially a vegan milkshake down the line.
"As of now, we have Fatburger, which is an urban brand, and Elevation Burger, which is a very healthy and organic burger brand. As a theme restaurant, Johnny Rockets fits into this perfectly."
CEO, Fat Brands
But the casual dining segment has been hit hard by changing consumer behavior under pandemic conditions. In July, full-service comp sales fell 26.4% while QSR comp sales increased 6.7%, according to Black Box Intelligence data. Johnny Rockets was already experiencing declines in 2019, with sales slipping 3.7% and its unit count shrinking 3.8% to 175 restaurants. As of August 6, roughly half of Fat's casual Ponderosa and Bonanza restaurants are either completely closed or have shuttered their indoor dining rooms, Wiederhorn said during a Q2 earnings call with investors. Total revenue dropped to $3.1 million from $5.9 million in the year-ago period, and system-wide sales fell 51% year-over-year.
However, Fat Brands sales are beginning to bounce back as shelter-in-place orders ease and it is able to reopen brand locations in phases across the country. From mid-May to the end of July, sales grew 44%, Wiederhorn said on the earnings call, driven by strong performance at fast casual Fatburger and casual chains Buffalo's Cafe and Hurricane Grill & Wings. These three restaurants make up 75% of the company's revenue.
The two latter brand's have benefited from their outdoor dining porches, and the company is encouraging franchisees of these East Coast restaurants to order heaters, tents and plastic walls to prepare for colder temperatures and maintain their outdoor dining offering, Wiederhorn said on the call.
"People will be eager to get out of their house and go back to restaurants for the experience, but we will also see people still leaning towards delivery options," Wiederhorn said. As for its newly acquired restaurant chain? “Johnny Rockets is a great brand that has a lot of legs, and we think we can really help take it to new heights."