Business sizzles as Fatburger goes to franchise model

The smell of seared beef emanates from the flat-top grill, and the crackling sound of a fried egg signals the Fatburger is almost ready. Franchisee Darin Feinstein’s recently remodeled restaurant at 3763 Las Vegas Blvd. South attracts 1,000 to 2,000 daily visitors.

“None of the other Fatburger locations we own do the type of business the Strip location does,” Feinstein said.

Besides the Strip store, Feinstein owns the Fatburgers inside Red Rock Resort, Green Valley Ranch Resort and one in Lake Tahoe. He also owns six outside of Nevada.

Before spring 2011, all of the Las Vegas Fatburger stores were company owned, but as part of the company’s chapter 11 restructuring plan, all were sold to franchisees. Now operating under a franchise model, the 60-year-old Fatburger is back to being a healthy burger joint.

Financially speaking anyway.

“We fought hard in the trenches to get through the recession and the economy,” Fatburger CEO Andrew Wiederhorn said. “It was a difficult process to restructure the business and start rebuilding.”

In Southern Nevada, there are 13 Fatburger locations spread between six franchisees. Fatburger’s franchise fee is $50,000 and franchisees pay the company a 6 percent royalty.

In the United States, the number of franchises is expected to increase 1.5 percent this year to 736,114, marking the first year since 2008 that the franchise industry will add new units, according to the International Franchise Association’s 2012 Third Quarter Franchise Business Economic Outlook.

“The franchise model continues to demonstrate its resiliency as a business model, consistently outperforming other sectors in new business formation and hiring, particularly in the restaurant, retail and service sectors,” said association President and CEO Steve Caldeira.

Since 2008, the industry lost more than 23,000 establishments because of the recession and its lingering effects on consumer confidence, the housing market, credit access and jobs.

Fatburger store sales in Las Vegas are up “significantly” this year, but Wiederhorn couldn’t give specifics. Feinstein said his Station Casinos locations see “reasonable” yearly sales increases, and the Strip store has experienced a 100 percent increase of its annual gross revenue.

“We’re very pleased with the Fatburger model and the support we get from the corporate team,” Feinstein said.

Only one local location closed during the company’s bankruptcy, but one recently opened in Laughlin. Companywide, 20 stores closed from 2009 to 2011. But, 23 locations also opened last year and so far 35 have opened in 2012.

“We’re always looking at additional development opportunities in the Las Vegas area,” Wiederhorn said.

Six of the Las Vegas Valley’s Fatburger restaurants are inside Station Casinos properties.

“We have a very long-running, excellent relationship with Station Casinos,” Wiederhorn said. “They’ve been a great partner for us over the years. Our customers and their customers have similar tastes.”

The first Station-based location opened in 1997 inside Sunset Station.

“We believe we were probably among the first to bring them into the market,” Station Casinos spokeswoman Lori Nelson said. “We’re glad they were able to restructure. It’s been a good partnership.”

About 80 of 140 Fatburgers in the world are U.S.-based.

The hamburger chain began its international expansion efforts in 2006 by adding Canada, then followed in 2007 and 2008 by opening stores in China and the Middle East, respectively. Today, 275 more Fatburger locations are being developed in 27 countries, and only about 69 of those will be domestic stores.

“Internationally, that expansion really saved us,” Wiederhorn said.

Locales in which Fatburger has been most well received are Macau; Dubai, United Arab Emirates; and Canada, which has 30 open stores and 24 in development.

“That’s the biggest (international) market in terms of open units and they’re doing very well,” Wiederhorn said.

Wiederhorn and his Fog Cutter Capital Group bought a struggling Fatburger in 2003 for $7 million. In 2009, Fatburger filed for Chapter 11 bankruptcy protection for two subsidiary companies, Fatburger Restaurants of Nevada Inc. and Fatburger Restaurants of California Inc.

“It was very challenging. We’re very fortunate to be able to live to tell that tale. You can’t ignore that battle we had to fight and how successful we’ve become because of it,” Wiederhorn said.

The company reported sales of
$82 million in 2011, and is expecting to exceed $100 million this year.

Contact reporter Laura Carroll at
lcarroll@reviewjournal.com or 702-380-4588.