BurgerFi CEO Ian Baines didn't mince words with investors Wednesday when he said COVID had a "profound effect" on business.
Going back 18–24 months, BurgerFi's network comprised mainly of single and two-store operators who didn't have the wherewithal to weather the pandemic storm. As a result, many closed in 2020 and 2021 from a lack of capitalization, operating expertise, or labor availability. That slide continued in 2022, with 15 closures systemwide. In Q4 alone, five franchise locations shuttered permanently. That's after shutting down 17 outlets in 2021.
The corporate team is helping franchisees with training, menu, and marketing advice, but the company stops short of providing financial assistance.
"We think there are still some franchise locations that are struggling with labor availability, which then translates into their sales and financial performance," said CFO Michael Rabinovitch during the company's Q4 and full-year earnings call. "I think that there likely will be a few closures here in 2023."
BurgerFi finished 2022 with 114 locations—89 franchises and 25 corporate stores—down from 118 last year. The brand opened 11 restaurants in 2022 (three company-owned and eight franchises), but that's well below its projection of 15–20. Going back further to 2021, the chain hoped for 25–30 units, but the expectation was eventually reduced to 18. BurgerFi finished that year with 16 openings (10 corporate and six franchises), due to issues with securing equipment, permitting and construction delays, and scarcity of labor.
The chain's systemwide same-store sales dropped 9 percent in Q4 and 7 percent in 2022. The brand declined high-single digits against 2019. Baines attributed BurgerFi's sluggish sales to tough comparisons in Florida year-over-year, especially during the summer.
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However, 2023 has brought positive news. Comps have seen a 2–3 percent improvement in the first quarter compared to Q4. BurgerFi is also seeing better customer satisfaction scores and decreases in employee turnover. Profits are growing as well. In Q4, operating margins were 9.4 percent, a 280-basis-point lift from the third quarter, thanks to cost management, supply chain tailwinds, and lower turnover. The fast casual expects further margin recovery in the first quarter.
BurgerFi listed multiple strategic initiatives to maintain its progress. Last year, the company onboarded a new advertising agency and launched a new app, website, and enhanced loyalty program. Additionally, the brand's kiosk strategy is coming along, with 23 corporate stores and 17 franchises using the technology. In December 2021, the fast casual debuted Samsung kiosks powered by GRUBBRR, and the pilot led to an increase in sales, 18.5 percent average check growth, and 52 percent of guests opting into upsells. Kiosks absorbed up to 133 orders per day on average and accounted for 75 percent of total orders and 78 percent of net sales.
In terms of menu, BurgerFi rolled out a limited-time "Make it a Meal" bundle featuring an entrée, side, and fountain drink at a discounted price. It led to side and beverage attachment rates between 10–20 percent and an increase in average check. The concept also unveiled a new secret menu exclusively for loyalty members.
As for growth, BurgerFi is expecting 15–20 openings this year, which is inclusive of two to three franchises from Anthony's Coal Fired Pizza & Wings. So far in 2023, two restaurants have opened, starting with a BurgerFi franchise in the Newark Liberty International Airport. Another will debut at Fort Lauderdale-Hollywood International Airport later this year. Several more are under negotiation.
"BurgerFi's flexible footprint model makes airport locations ideal for introducing the brand to a wider audience, particularly one that values convenience without sacrificing quality," Baines said. "Airports continue to deliver high volumes, and airports do continue to grow as part of our development strategy. We plan to continue a strengthening presence in airports across the country in 2023."
In April, BurgerFi will hold a franchise summit—an event that's been called off in recent years—where operators and corporate can share best practices. Baines said the company's relationship with franchisees is "very strong." Rabinovitch noted that some of the better operators continue to deliver outsized sales performances, which he called "a testament to the strength of the brand."
Peter Saleh, a financial analyst with BTIG, said he's "cautiously optimistic" that BurgerFi can produce consistent sales and strong margin progress in 2023 as sales comparisons fade and improved marketing and menu efforts make bigger impacts.
"We have a positive view of BurgerFi shares given the company's unit development opportunity, margin expansion potential and favorable positioning of the fast-casual burger segment," Saleh said in a note. "After a rocky transition to a public company following its combination with a special purpose acquisition company, we believe new management has installed many of the systems, infrastructure and operating rigor necessary for a public company and growing restaurant concept."
"We believe the company is at a promising stage in its life cycle with considerable unit opportunity that a more disciplined, strategic approach to development should be able to capture," he added.
Anthony's same-store sales increased 1 percent in Q4 and 5 percent in 2022. The casual-dining chain's store-level operating margin was 15.2 percent in the quarter, a 70-basis-point jump from 14.5 percent in Q3. Similar to BurgerFi, Anthony's comps have seen a 2–3 percent increase in Q1 versus where it was in the fourth quarter. Off-premises mixes 50 percent, with 15 percent of that coming via phone orders. Recently, the company launched an AI phone answering system with ConverseNow, which brings 10–12 percent average check growth, faster throughput, and better customer service.
The first franchise restaurant, which will be a co-brand unit with BurgerFi in Kissimmee, Florida, will debut in June. Another is planned for Miami in Q4 of this year. The brand has 60 corporate locations, closing one underperforming store in 2022.
"We have two very high-quality brands that are on trend with consumers and laser-focused on enhancing operations and driving sales to achieve profitable growth," Baines said. "We further believe that we're in the early innings of our growth story, with significant whitespace ahead."