In this FDD Talk 2015 post, you’ll learn the following:
- Section I – Background information on the Smashburger franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Smashburger franchise, based on Item 7 of the company’s 2015 FDD
- Section III – Presentation and analysis of Smashburger’s financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:
- 2014 average gross sales for the 230 Smashburger Restaurants (139 affiliate-owned and 79 franchised) that had been operating for at least a full year as of December 28, 2014
- 2014 average gross sales, cost of goods sold, gross profit, labor costs, and gross profit less labor costs for 116 affiliate-owned Smashburger Restaurants that met 3 criteria
Section I – Background Information
Denver-based Smashburger has enjoyed continued growth ever since its introduction in 2007. The chain now has more than 300 locations in 32 states and five countries.
A burger restaurant with upscale twists, Smashburger is known for “smashing” its burgers. A ball of fresh ground beef is placed on a buttered griddle and smashed with a metal plate; the burger is cooked until it begins to get a slightly crispy crust, resulting in a burger that’s closer to homemade.
IPO a Possibility
Smashburger CEO Scott Crane told CNBC on March 17, 2015, that the company is continuing to grow and could eventually go public. He said the chain should grow 20-25 percent in 2015 and expand at the same rate for the next three or four years.
Former CEO Sues
In September 2014, former Smashburger CEO David Prokupek, who was fired in November 2013 and replaced by Crane, filed a lawsuit against the chain’s owner Consumer Capital Partners, alleging they manipulated the company’s valuation so they would not have to pay him his full equity in the company when his employment was terminated.
Prokupek was named chairman and CEO of Smashburger in 2008. According to legal filings, he had built up significant equity in Smashburger by the time of his termination.
Early in 2014, Smashburger chose to exercise its right to buy back Prokupek’s shares. Neither side could agree on the value of the equity or on a choice of an independent valuation expert. In July, Smashburger sued Prokupek and asked a judge to appoint an independent firm. In its lawsuit, Smashburger said Prokupek’s valuation expert called the value of his shares “substantially higher” than the company’s valuation of those shares.
In a countersuit, Prokupek said he was terminated without cause and alleged that Smashburger engaged in “improper tactics” so the chain could avoid paying him fair market value for his shares.
Prokupek became president and CEO of Jackson Hewitt Tax Service Inc. in March 2014.
Kern Added, Biederman Promoted
Josh Kern was named chief marketing officer in November 2014. Kern previously was CMO for Smashburger owner Consumer Capital Partners. David Biederman, who previously worked on the core development team, was promoted to chief development officer in May 2014.
Organic arugula and organic mushrooms were placed on the menu in July 2014 when Smashburger added its Organic Arugula, Truffle Mushroom & Swiss Burger, which also features truffle oil. The sandwich was named Best Menu Line Extension in the 2015 MenuMaster Awards, presented by Nation’s Restaurant News.
On the Road
Smashburger hit the road in the summer of 2014 for a social media campaign to promote its regional burger recipes. The company gave away a prize of free burgers for a year in each market on the tour to the fan who posted the best Smashburger photo to the company’s Instagram account using the hashtag #SmashRoadTrip.
The campaign highlighted regional burgers such as the Brooklyn Burger (featuring grilled Pastrami) and the New Englander Burger (cranberry Stilton cheese and cranberry sauce).
Smashburger announced in May 2014 that it had partnered with Udi’s Gluten Free to offer an option of a gluten-free bun at U.S. locations. Smashburger also stated that it had reformulated its seasonings for burgers and grilled chicken to be gluten-free.
Empire State Smashburger
On April 10, 2014, Smashburger opened its first Manhattan restaurant, located in Midtown next to the Empire State Building. The menu features regional flavors and includes the New Yorker, a burger topped with New York cheddar cheese, garlic-grilled onions, spinach, tomato and peppercorn garlic aioli on a brioche bun.
Smashburger received a number of honors in 2014, including these three:
- No. 1 on Fast Casual’s “Top Movers & Shakers” list
- No. 2 on Franchise Times’ 2014 “Fast and Serious” list of smartest-growing brands
- No. 6 on Forbes’ annual list of “America’s Most Promising Companies”
The chain prides itself on “better burgers,” made with certified Angus beef, with four artisan bun selections: egg, multi-grain, spicy chipotle and brioche. Customers pay higher prices, but get unusual menu options, upscale amenities and targeted regional menu offerings.
Section II – Estimated Costs
- Please click here for detailed estimates of Smashburger franchise costs, based on Item 7 of the company’s 2015 FDD (updated).