Wednesday, November 16, 2016

Chanticleer Holdings (HOTR) Turns Up the Heat in Fast Casual with Tight Regional Brands & a Better Burger Strategy

From somewhat humble beginnings back in 2005 as a parent structure for investment in and franchising of the extremely successful Hooters brand that has given rise to a bevy of successful imitators over the years, Chanticleer Holdings (NASDAQ: HOTR) has emerged over the last three years as a serious contender in fast casual via brilliant execution of a regional brand strategy. The core “better burger” focus of HOTR’s approach to what is argued by many to be the world’s fastest growing foodservice segment (, as fast casual grew 10.4 percent last year to around $3.4 billion, has continually delivered empirical results over the last few years confirming the wisdom of management’s strategy.

Q3 2016 (ended September 30) was another solid quarter for Chanticleer too, with 18.3 percent revenue growth ( on strength of the fast casual better burger segment, even as the company managed to shave 2.5 percent off of its operating costs, and 5.5 percent off of G&A expenses. Nine-month revenues were even hotter, at 30.3 percent growth to $31.8 million, clearly illustrating a bullish revenue growth trend mapped out in the company’s November 2016 investor presentation ( A replay of the November 9 conference call discussing the company’s revenue growth, overall improved revenue mix, and the success of ongoing efficiency initiatives is available until December 9 by calling (877) 481-4010, or (919) 882-2331 for international callers, using conference ID 10138.

At the center of a growing envelope of brands for Chanticleer are American Burger Company, BGR the Burger Joint, and Little Big Burger, all of which maintain a key emphasis on experience elements such as the freshness of high quality ingredients. Premium beef, unique and energetic environments, cooked-to-order meals, and gourmet burgers – these are the kinds of fast food-killer features which have sparked a broader revolution in the way people eat out. Little Big Burger (LBB) in particular made a strong showing, further underscoring the ingeniousness of Chanticleer’s uniquely crafted regional brand strategy, as LBB contributed significantly to 19 percent sequential quarterly growth in Adjusted EBITDA from continuing operations.

Capitalizing on this revolution by perfecting the better burger concept is a nice approach for an outfit that cut its teeth franchising the oft-imitated but never duplicated Hooters brand. An American icon that obviously paved the way for such entities as last year’s fastest-growing chain in the U.S., Twin Peaks ( ($165 million in sales last year). Chanticleer currently operates nine Hooters locations under franchise, with two in the U.S., one in the EU, and six in South Africa – in addition to owning a minority stake in the Georgia-based wing of Hooters, Inc., Hooters of America. Rounding out the brand mix for HOTR is Just Fresh ( (eight locations), a North Carolina market, health-focused brand which features a menu of wholesome and nutritionally balanced foods, including wraps and grilled dishes, baked items, sandwiches and smoothies, as well as a variety of salads, soups, and breakfast items.

American Burger Company ( proudly features a “Made in America” menu that ranges well beyond premium burgers into the realm of sandwiches, salads and delicious shakes. With nine locations in the Carolinas currently under the Chanticleer flag, the ABC brand is growing fast, and features such memorable attractions as a Wall of Fame challenge burger (, the Roadstar®, which is four cheeseburgers in one. Little Big Burger ( (eight locations) is the fastest gun in the company’s lineup. Serving high quality cooked-to-order burgers in Portland and the Pacific Northwest region that are made with 1/4 lb. of cascade natural beef, served on brioche buns, using local cheeses, fresh veggies, and featuring the distinctive taste of a veritable Portland institution, Camden’s Blue Label Catsup ( Fine touches like this show how dialed-in the regional brand presence model is here, and they speak volumes about HOTR’s past and potential future performance that you just can’t find pouring over SEC filings.

BGR the Burger Joint ( is doing really nice turnover for the company as well, with open-flame gourmet fast casual at 22 locations across the U.S. adding mightily to HOTR’s bottom line, even as the brand brings in organic marketing due to underlying product excellence. Recently voted the best burger in D.C. for 2016 ( by Washington City Paper’s reader poll, the BGR brand concept, which got its start with a small shop off Woodmont Avenue in Bethesda back in 2008, has performed exceptionally as a regional brand, and has since expanded more toward being a nationwide brand. Named among America’s Top 10 Chain Burgers in 2014 by an MSN report from The Daily Meal (, the restaurant chain earned its fame on the back of founder Mark Bucher’s famous burger, which is based on the burgers he had as a kid growing up on the outskirts of Philadelphia, back when the neighborhood beef butcher would draw lines around the block every Sunday, grilling up the best prime beef Philly had to offer. This kind of media coverage for the authentic-tasting menu has been more than great publicity for the brand, it shows how BGR is able to deliver robust value through what is now considered boutique quality, and at nominal, fast casual prices. This is a winning model.

The company has built up an impressive foundation of stores in the last few years as well, with the brand basket ending up pretty well mixed at around eight or nine locations each, and the notable exception of course being gourmet burger restaurant, BGR, with its 22 locations. Chanticleer opened its seventh American Burger Co. in September (, as well as its first Little Big Burger in Seattle (, shortly before opening a new BGR location in the Sultanate of Oman ( in early October.

While competitors in the market such as juggernaut Chipotle Mexican Grill (NYSE: CMG) have seen share prices decline on saturation and other issues since late 2014, as old money outfits like McDonald’s (NYSE: MCD) execute decisive moves to recapture core audiences – a spry little player like Chanticleer, with its better burger focus and winning regional brand strategy, has managed to cut off sizeable chunks at the margins. Better positioned to capture increasingly discerning, regionalized consumer dollars with higher concept, higher quality offerings, Chanticleer represents a powerful way for investors to play this growth sector. Yum Brands (NYSE: YUM) and other behemoths in the industry have had difficulty recapturing market share from upstarts like Chipotle, and now with companies like Panera Bread (NASDAQ: PNRA) and Shake Shack (NYSE: SHAK) nipping at the heels of CMG, the game is set for desaturation by disruptors like Chanticleer, with its strong handful of better burger brands.

The company is as passionate about its food as it is about offering guests a memorable experience, and that really shines through when it comes to organic buzz, a clear result of the company’s commitment to staffing quality. Staffing has always been a central theme for the company, and Michael D. Pruitt, Chanticleer Holdings Chairman, President and CEO, understands that success in this industry is as much about the wait staff as it is about the Board of Directors. That’s why Chanticleer tapped some serious business operations, real estate and finance muscle earlier this year, with the Board appointments of Gregory E. Kraut and Paul G. Porter. Kraut, a Principal of commercial real estate services firm Avison Young, has nearly two decades of tenant and landlord leasing and sales representation under his belt. Whilst Porter is Managing Director over at Siskey Capital, where he handles oversight, structuring and management for the firm’s private equity.

Pruitt made it clear in the Q3 financials release how the company intends to springboard off its current momentum, leveraging the recent convertible preferred stock rights offering (designed to retire debt and provide growth capital) to capture more of a market that continues to prove quite eager for better burgers, and a better fast casual dining experience.

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