This is not a great time to be a fast-casual burger chain. Consider some of these recent headlines:
BurgerFi hired a restructuring officer after telling its investors that it may have to file for bankruptcy and may not survive at all.
Habit Burger Grill rebranded to Habit Burger & Grill amid some steeply falling sales.
Shake Shack is closing nine locations.
What’s happening with the fast-casual burger sector?
Nothing that’s not hitting just about every other industry sector: Competition, consumer frustration over prices, shifts in demand and chain-specific issues. But it’s also worth taking a look at the sector, given some of the aforementioned headlines.
The fast-casual burger sector emerged during the Great Recession, as chains like Five Guys and Smashburger grew aggressively through franchising, which was a popular route for people who were laid off during that time.
Investors, as they are wont to do, found other fast-casual burger concepts to grow after seeing those brands gain traction and consumer excitement. In the case of Shake Shack, popularity in its core market, New York, sparked expansion, a highly popular IPO and further growth.
But the influx of all these concepts has flooded the market with competitors. While burgers are popular, they are perhaps the most prevalent menu item in the restaurant industry. That means the brands themselves need to be absolutely on their game to win over consumers.
Amid all this has been a shift in dining toward drive-thrus, which many of these fast-casual burger chains do not have, and delivery, which they all use but which is not all that profitable for the operator.
Consumers, however, seem to prefer the fast-casual chicken brands.
Since 2019, fast-casual burger chains on the Technomic Top 500 Chain Restaurant Report have grown sales by nearly 40%. That was above average for fast-casual and quick-service chains over that period. But it was also less than half the growth of fast-casual chicken, which grew sales by 87% over that period.
Last year, fast-casual burger chains grew sales by 8.3%. By comparison, fast-casual chicken sales grew 16%. What’s more, fast-casual chicken as a sector is nearly twice as big as fast-casual burger. Consumers seeking quality options have been broadening their choices in recent years, limiting the market for higher-end burger chains.
Meanwhile, traditional fast-food burger chains’ sales grew just 7.3% last year. But that is a far larger sector, meaning they added another $7 billion in sales—more than the entire fast-casual burger sector, period.
And quick-service burger chains feature concepts that compete directly with fast-casual chains for the quality burger customer: Whataburger, Culver’s and In-N-Out, each of which grew sales by nearly 13% last year. Add those three to the fast-casual burger sector and its performance probably looks a lot different.
Shake Shack’s sales grew 21% in 2023, and its same-store sales have been generally strong so far in 2023. Its sales growth last quarter outpaced any of the quick-service burger chains.
But it also has a new CEO in Rob Lynch, who is set on putting his mark on the company, and thus it is closing some underperforming locations. That was the first time the company has closed restaurants.
A bigger risk for the chain is Lynch’s plan to make Shake Shack more of an everyday option for consumers—which could be problematic for a brand that has traditionally been more of a special occasion destination.
But the presence of so many burger concepts and the growth of other sectors such as chicken has made life difficult for a lot of fast-casual burger chains, like Smashburger (sales down 5.1% in 2023) and Fuddruckers (sales down 21.3%).
Habit, which was sold to KFC owner Yum Brands in 2020, has had flat or falling same-store sales for each of the past nine quarters. A company that was tabbed as a long-term source of growth for Yum has instead struggled to gain consumer attention and is now in a rebranding phase.
BurgerFi is in far worse shape. System sales in the first quarter were down 17% and same-store sales fell 13%. We don’t have second-quarter numbers, because the company hasn’t filed its quarterly earnings report over severe financial problems. BurgerFi did say that same-store sales were declining at its namesake concept. But it is likely days from a sale to its lender.
The lesson? Burgers are great and people still love them. But there are a lot of brands that sell them, so if you’re going to get into the business you’d better be on your game.