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Whataburger looks for an investor

The chain is reportedly looking to sell a stake in the business, suggesting the chain may be ready to speed its growth, says RB’s The Bottom Line.
Photograph: Shutterstock

the bottom line

Whataburger may be the quietest big restaurant chain in the country. That may be about to change.

The San Antonio-based burger chain is looking for an investor, according to multiple reports in Reuters and Debt Wire, each of which cited multiple sources. The investment could be either a control investment or a minority deal, but either way, it signals a major shift in thinking for the family-owned chain.

That is, you do not bring on a major investment if you plan to do things the same way you’ve always done them.

“Our company is growing and is always attractive to investors,” the company said in a statement. “We constantly get inquiries. We have always evaluated the opportunities that can accelerate growth and maintain the success of our brand, and we will continue to do so in the future.”

Whataburger is a big, high-performing company. The chain’s system sales have grown by 52% over the past five years, according to data from Restaurant Business sister company Technomic. Its compound annual growth rate over the past five years is 8.7%, considerably higher than the 2.2% average in the quick-service burger business. Unit count is up by just 9%.

That means it has grown mostly by increasing unit volumes, which are now in elite territory—$2.9 million, up 5.7% last year according to Technomic Ignite data.

With more than $2.4 billion in system sales and more than 800 units, it is the country’s 31st largest restaurant chain.

To put that into perspective, that is $300 million more than Hardees, $800 million more than Five Guys, $900 million more than Red Robin, $1 billion more than Carl’s Jr., and $1.5 billion more than In-N-Out. All of those chains are better known than Whataburger.

As such, Whataburger tends to get overlooked in the burger business even though it is the country’s sixth largest burger chain.

The search for an investor suggests the company could be preparing to intensify its growth, perhaps looking more intently at markets outside of its Texas base.

Whataburger is a mostly company-run business, much like California chain In-N-Out and less like Chicago chain McDonald’s. That requires a lot more capital.

At the same time, the restaurant business these days demands a lot more out of its restaurant chains. There are growing needs for technology and other advancements, all of which require their own infusions of investment.

As Wendy’s CEO Todd Penegor noted on Wednesday, “scale matters in the restaurant business.”

But there’s also the family dynamic. Whataburger was founded in 1950 by Harmon Dobson and Paul Burton and remains a family-owned company, owned by the Dobson family. The family could be cashing out some of its equity in the business. Even if that’s the only reason for a sale, that is still a huge change.

It’s certainly not the first time that a highly-regarded restaurant chain with family ownership sought an investor or buyer. The Chicago-based QSR Portillo’s was sold to Berkshire Partners in 2014 for $1 billion and has been aggressively growing in other markets ever since.

There is a danger for such chains that do take on more aggressive expansion after succeeding as a regional concept for so long. Customers outside those home markets are not as attached to the chains, after all, and it can be difficult for that kind of enthusiasm to spread.

But others can thrive so long as they keep to the principles that made them popular in the first place, in terms of product quality and customer service, which Atlanta-based Chick-fil-A has proven even as it expanded into such non-Southern markets as New York City

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