Chicago Was Too Tough for These Burger Chains

There is, apparently, such a thing as too many burgers. Only a few years after a horde of hamburger chains move to Chicago, some are already closing. Others are nixing expansion plans and watching sales slip, slammed by a glut of competition and an industry-wide slowdown as Americans push back against rising restaurant prices by eating at home more. “The fast-casual burger segment got too crowded, the competition got too intense and a lot of these places did not give customers a compelling reason to visit,” says Bonnie Riggs, an analyst with market research firm NPD Group. “It’s a tough place to be.” Red Robin has shuttered all five of its Red Robin Burger Works, only two years after introducing the compact version of its conventional fast-casual restaurant in the city. Smashburger, a Denver chain that boasted 11 Chicago-area restaurants in 2015, has shrunk its local footprint to just four sites. And Five Guys, an elder statesman that began grilling burgers in suburban Washington, D.C., 31 years ago, also has retreated; it’s down to 23 restaurants in the Chicago area from 36 two years ago. Other chains quietly have suspended buildout plans here. Tom & Eddie’s, a “better burger” concept launched in 2010 by two former McDonald’s executives, grew to five suburban locations in 2014; today it’s down to three. Mooyah Burgers, Fries & Shakes debuted two locations, in Glenview and Lombard, in 2014 and broadcast plans for 10 more franchises by 2016. Now, the two original locations are gone and a single Mooyah, in Joliet, remains. “You’re looking at the pitfall of a high-growth segment: Aggressive franchising eventually creates saturated markets and leads to closures,” says Darren Tristano, an adviser with Chicago food consultancy Technomic. “There are probably going to be more losers than winners.”

The problem extends beyond just having too many burger chains with generically sleek design and indistinguishable sweet potato fries. Another megatrend—the rise of third-party voices like Postmates and Uber Eats—is further saturating the market by allowing full-service restaurants to directly compete with the Epic Burgers and M Burgers around town. Uber food delivery customers can now, for example, choose a grass-fed burger with cheddar and charred balsamic red onion from DMK Burger Bar for $10.50—just a buck or two more than the myriad fast-casual options available. And if you’re trying to keep your burger under $5, McDonald’s also delivers via Uber Eats. “There’s no growth in the number of burgers that people are eating, but there’s a lot of growth in the number of outlets serving burgers to casual customers,” Tristano says. In fact, Americans are cutting back on all those sliders. Chalk it up to the growing concerns about health risks associated with red meat—or maybe just a growing preference for grilling their own patties in the backyard—but the number of fast-casual burgers sold in the U.S. has fallen by single-digit percentages two years in a row, to 6.8 billion for the 12 months that ended in June, according to NPD, in Fort Washington, N.Y.

Consumers willing to spend a bit more, meanwhile, have new trendy options like artisanal salads from Freshii or Sweetgreen and poke bowls from any of a dozen new spots offering the Hawaiian specialty. But most Americans, stung by increasing health care costs and minimal pay raises, are nixing their restaurant budgets altogether, Riggs says. “It created a double whammy last year when health care costs forced operators to increase restaurant prices at the same time that consumers were feeling their own health care pinch,” she says. Add to that an 18-month stretch of food deflation, born of low oil and grain prices plus cutthroat grocery competition, and most middle-class consumers suddenly see little reason to go out. “It’s just not worth the money,” Riggs says, “especially when you can grab a prepared meal at the supermarket. The options are endless.” As a result, the fast-casual market—long a darling of the overall restaurant industry, posting six years of growth ranging from 8 to 20 percent annually—has sputtered. And without fast-casual to prop up the rest of the sector, restaurants overall have clocked six consecutive quarters of declining traffic, the worst stretch since the recession.

But while some regional chains have struggled to make it here, at least some of those with distinct products are doing just fine. Culver’s, known as much for its frozen custard as its ButterBurgers, is building three locations in the city, adding to the three dozen it operates in the suburbs. And Kuma’s Corner, a Chicago institution known for monster hard-to-bite burgers served with a heavy-metal theme, opened its fifth restaurant in the West Loop in May. Co-owner Ron Cain says he’s also eyeing locations in Vernon Hills, Denver and even Scandinavia, where the love of death metal runs deep. He aims to open one a year until Kuma’s hits 12 to 14 outlets. “We take a lot of pride in our 10-ounce fresh patties—nothing in our restaurants is frozen or microwaved,” says Cain, explaining why he thinks Kuma’s is growing while others aren’t. And even though Kuma’s items aren’t cheap—a Slayer burger with chili, caramelized onions, andouille, Monterey Jack and “anger” runs $16—the portions are so heaping that people consider it a good value. It helps, too, that Kuma’s pours beer. – Source: Crain’s Chicago Business.