Hamburgers are one of the quintessential American foods. So it’s completely appropriate that they helped create one of the archetypal American businesses: the chain restaurant.
Hamburgers were the first food and concept to be sold by one company at multiple locations and the sales haven’t stopped. The first hamburger chain, White Castle, is still in business and going strong across the country.
And its compatriots are helping shape the quick-service restaurant (QSR) landscape. While other foods and cuisines are arriving at the table, the burger still reigns supreme.
According to Technomic, the combined sales of the top 27 hamburger chains tops an estimated $61.5 billion for 2007 in more than 47,000 locations across the country. Those numbers include both relatively small chains such as Burgerville and Fat Burger to the corporate titans of McDonald’s and Burger King.
The offerings at hamburger chains have expanded a bit beyond the still-popular basic burgers. Restaurant concepts for the sandwich go from quick and inexpensive to high-end and formal. Burger chains have also learned how to adapt to a marketplace that is both very crowded and much more varied in its tastes.
Maintaining relevancy in a packed market is vital and gets more vital the longer a company is around. Some companies make it seem almost easy.
“For us, we’re doing everything we can to remain relevant to customers,” says Jamie Richardson, vice president at Columbus, Ohio-based White Castle. “Luckily, the love of the taste of our products helps.”
As does the quality. Thanks to its 88-year history, White Castle has gotten quality almost to a science with both its food and staff. Having a loyal customer base doesn’t hurt.
“If I was going to boil it down to the ‘key’ thing, our consumers have something that goes beyond loyalty,” says Richardson. “It’s called the ‘Crave.’” The company has even established a Crave Hall of Fame.
White Castle isn’t the only chain that is exploiting a niche and reputation. Portland, Ore.-based regional chain Burgerville has focused on its own unique position as a natural and organic hamburger restaurant.
The company has adapted to the Northwest city’s reputation as a “green” or environmentally sustainable area and has planned its menu on what’s available in the region.
The majority of the menu items, including the meat for the hamburger patties, come from surrounding agricultural areas. Milkshake flavors are determined by the season (blueberry in the fall). Onion rings are only available when the region’s world-famous Walla Walla onions are harvested.
“I think this community tends to have a lot of people who care about the environment,” says Jack Graves, chief cultural officer for Burgerville. “I don’t know what came first, sustainable Portland or Burgerville. I think they feed off each other.”
Graves says that his company’s consumers are very focused on that aspect of the food industry. Wanting to know where their food comes from and keeping it local is important to them.
The big boys on the burger landscape work to set themselves apart as well. Carpinteria, Calif.-based CKE Restaurants Inc. is the nation’s fourth largest hamburger chain through its Carl’s Jr. and Hardee’s brands. That doesn’t mean that the company has stopped finding ways to shine.
“We remain committed to bringing sit-down restaurant-quality burgers (and other menu items) to our fast-food customers and to maintaining edgier brand images than the other chains would generally dare to go,” says Brad Haley, executive vice president of marketing for Carl’s Jr. and Hardee’s restaurants.
The company has established a reputation for attention-grabbing commercials and hamburgers that go beyond the basic meat patty in a bun.
Changing marketplace
A near-saturated market isn’t the only concern for many chains. Commodities costs, which have already hit many processors hard, are now reaching the retail level. Chains are now faced with how to handle prices for the most basic ingredients in their trademark offerings.Graves says that Burgerville set the prices for ingredients, especially beef, at the beginning of the fiscal year. There are some price increases for some items that must go through big foodservice suppliers such as Sysco, but it’s a different situation for core items that come from local producers.
“There are others, smaller outfits, where we just do business with verbal agreements,” he explains. “They work with us on prices set at the beginning of the season.”
The company has also used its unique localized approach with energy costs. Burgerville has made investments for wind-generated electricity for its locations. The region is also a major producer of hydroelectric power.
“Our rates on the renewable side have actually gone down,” Graves continues. “The added value that is given to our product through good will and the community comes back to us in our sales and guest count. People come to us because we are investing in those kinds of things in our community.”
Chains with a broader national base have had to make some tough choices in respect to prices. Both CKE and White Castle have been forced to raise their prices for consumers in recent months. However, they haven’t seen a backlash from guests.
“We have had to raise prices several times but our advertising reinforces the good value-for-the-money our premium burgers and other products represent versus casual-dining prices,” says CKE’s Haley. “To mitigate the potential traffic impact of higher prices, we offer a few value items for the increasingly price-sensitive customers.”
The company also expects its suppliers to help “share the pain” of rising commodity costs since no one can expect the end user to fully absorb the kind of cost increases all food-industry companies have been facing without it adversely effecting their purchase behaviors.
McDonald’s Corp., the world’s largest hamburger chain based in Oak Brook, Ill., has been maintaining its position at the top of the heap even in rocky economic times.
“McDonald’s is often our customers’ restaurant of choice because of our everyday value and convenience,” says Danya Proud, spokeswoman for McDonald’s USA. “Challenging economic times affect everyone — no matter where you shop or choose to eat. However, because we have long-term relationships with suppliers that are not contingent on the current or next promotion, we’re uniquely positioned to provide our customers with consistent value across our menu every day.”
She says the company’s U.S. business continues to be strong and the corporation looks forward to expanding its beverage lineup and sees many growth opportunities building upon its existing menu as well as new items in the menu pipeline.
Richardson says White Castle has increased prices because of the uncertainty of the market and with how quickly prices have risen. However, there has been no backlash from its faithful customers.
“I think what we’re encountering is that customers are pretty understanding,” he says. “Whether you’re visiting the store or restaurant, our customers are experiencing an environment where costs have gone up for everybody.” Richardson adds that the company looks at its suppliers as partners in the food chain.
“We find that same commitment to quality that we hold ourselves too,” he says. “And also have a shared passion for our business.”
Along with prices, the staff has also been changing for burger chains. Changing demographics have an impact on both who’s coming to the restaurant to eat and who’s behind the counter. For some chains, that’s always been part of the environment.
“We’re very fortunate that we’ve always had a real diverse workforce,” says Richardson. “Our team members are residents of the communities where we do business. It hasn’t required adaptation, it’s just who we’ve been. We’ve been in some of those neighborhoods since the 1920s. As they’ve changed, we’ve changed and grown with the communities we’re in.”
Still growing
Even with the rising costs and the changing marketplace, hamburger chains have moved forward with their plans for expansion, largely by focusing on areas where they already have a foothold.Graves says that privately held Burgerville is planning another growth spurt, but the company is keeping it local.
“We always feel we do better closer to our home bases and maintain our core business,” he explains. “The closer to home we are able to grow it.”
Reaching up to Seattle is a long-range plan, but the big focus now filling in the gaps in their home city.
White Castle is also privately held and doesn’t go into detail with it plans. But Richardson does say that the company is planning to add 10 locations in areas where it already has a presence. The chain has also found a lot of success through the foodservice sector through sales of its hamburgers in the freezer sections of supermarkets.
“I think that we’re seeing that our customers enjoy great-tasting sandwiches,” he says. “We’ve also seen increases in buying bacon cheeseburgers or jalapeño burgers. But our point of difference is smaller burgers, on a steam grill with onions. It never seems to go out of style.”
CKE has also been working on expansion. Its two brands are essentially regional chains which gives it a lot of room to grow. Haley says that Hardee’s focused on filling in markets where it already has a presence while Carl’s Jr. is reaching out from its core California market to Texas and the Pacific Northwest.
The crowded market and a slowing economy haven’t stopped much of the energy that has long been a part of the segment. In fact, some think the more the better.
“We value those in the industry who give their very best for great service and high-quality product,” White Castle’s Richardson says. “We’re in this together.”
