Admittedly, The Habit Burger sometimes struggles with how to approach its franchise expansion, Phillips says. Initially, the brand first identified a well-suited operator and made it happen in whatever market that person is in, but now the development team is seeking a more hub-and-spoke, concentric approach around a core region. The former method is still used somewhat, but that’s assuming it’s a large enough operator and agreement that it would make sense, not a routine five-unit deal in the middle of Texas.
The Habit Burger offers franchisees four prototypes—nontraditional (less than 1,200 square feet), freestanding drive-thru (2,500-3,000 square feet), endcap (flexible square footage), and endcap with drive-thru (2,400-2,800 square feet). The concept was born out of the non-drive-thru endcap design, but as the fast casual ventured outside of California and navigated the pandemic, freestanding and endcap stores with drive-thru capability have soared in popularity among operators, with the edge going to standalone because of the visibility and easier egress and ingress. The nontraditional options are typically one-offs with licensing partners as opportunities become available.
Prior to COVID, dine-in accounted for 60 percent of sales, which Phillips describes as a “rare event” for quick-service brands, but the rise in digital cannot be ignored. During the first year of the pandemic, app and web order sales mixed nearly 40 percent, and now, about one-third of stores have pickup shelves, with plans to expand more broadly in the coming months.
However, Phillips says The Habit Burger will continue to take great pride in the build of its dining rooms and maintain a menu that lends itself to the dine-in occasion. The chain views it as a competitive advantage, and will dedicate resources to it as the in-restaurant mix keeps recovering.
“We're happy with where it's going and the dine-in continues to increase as the weeks go on,” Phillips says. “That's why we're still looking at having well-defined dining rooms. So as some of the typical [quick-service restaurants] are kind of ostracizing dining in, we want to make sure we continue to embrace that as a great respite for our guests to be able to come in and do what they've done before.”
As economists warn of a recession, Phillips says everyone is “looking at things a little bit harder and longer” to assess where the company is going. Right now, the team can see that leases haven’t gotten any better and that construction is about 20–25 percent more than pre-COVID figures. And there are still concerns around COVID and what locations make sense, i.e. will people ever truly return to the office.
He also points out The Habit is known to be a value-oriented brand, which served it well during the Great Recession more than a decade ago. Rising labor and commodity costs squeezing margins make it tougher, but Phillips still prefers The Habit’s current positioning in the marketplace. He feels there will be opportunity to accelerate development long-term as competitors without staying power fade away.
The key part is that franchisees aren’t facing the new environment alone. The company is building and investing beside operators, which breeds optimism and confidence throughout the system.
“We can walk the talk, so to speak, because we are out there developing, and we've got a lot of stores in the pipeline,” Phillips says. “All of our franchise partners know that we're doing our best to keep the cap on construction costs and do things, but we do see a light at the end of the tunnel. We've been a historic brand. We have a great working relationship and we've got some great real estate programs that we work with to find sites.”
“They work really in tandem with our construction folks to build at a good level,” he adds. “The support—and us building at the same time—you show them that we're in this to win it and it's a partnership down the road. Every day seems a little bit different between COVID, recession, inflation and everything else, but we're keeping a steady path and eyeing things long term.”