Fast-Casual Upstarts Recruit Big-Time Investors for Accelerated Growth

LeBron James has made another monumental decision to switch teams, and while this one did not require a self-indulgent TV special—or cause any of my colleagues from Ohio to burn his jersey—it probably will turn out to be another shrewd move to a winning organization.

The basketball star has cut ties with McDonald’s and will now be the spokesperson for Blaze Pizza, the fast-casual pizza brand in which he invested three years ago. Just like how he joined other superstars on the Miami Heat in 2010, James is once again partnering with big money and talent (other investors include Maria Shriver and Boston Red Sox chairman Tom Werner, not to mention Levy Restaurants). And in terms of glamour and appeal to young consumers, the fast-casual segment might as well be foodservice’s South Beach.

But James is not the only giant brand to make a multimillion-dollar bet on fast casual continuing its winning streak of the past decade.

Nearly a week after James’ decision was made public, Jollibee Foods Corp. announced a $134 million investment in Smashburger, good for a 40% stake in the burger brand. Jollibee already operates or franchises 3,000 restaurants around the world, dominating its home market of the Philippines and targeting key Asian countries, namely China. Its acquisition of a sizeable minority ownership in Smashburger will provide the growth vehicle in the United States that Jollibee has long sought. Its namesake brand has expanded to this country already but has been confined mostly to Filipino neighborhoods.

Finally, Southern California-based sandwich chain Mendocino Farms received a minority investment from fresh-format grocery giant Whole Foods. Terms of that deal were not disclosed, but Mendocino Farms indicated that it would anchor the restaurant offerings attached to locations of “365 by Whole Foods,” the grocer’s new value-focused brand.

In each case, the young restaurant brand gets millions of dollars in growth capital to accelerate expansion, build infrastructure and support capabilities, and take advantage of the investors’ scale where they’re strongest. Blaze Pizza will have the added benefit of leveraging LeBron James’ star power as it bolsters its marketing over time.

The investors are placing a big bet on fast casual remaining the growth engine of the restaurant industry, but that’s not much of a risk at the moment. According to Technomic’s most recent Top 500 Chain Restaurant Report, the fast-casual sector’s 2014 sales increased 12.8%, more than doubling the next closest segment. That one-year jump even accelerated from fast casual’s five-year compound annual growth rate of 11.7%, showing that the segment has nothing but momentum right now.

Blaze Pizza, Mendocino Farms and Smashburger also have the advantage of being relatively young brands, particularly the first two, which have 88 and 11 locations, respectively. Smashburger has more than 300 units, but it plans to continue growing about 20% per year with Jollibee’s backing. All three brands very likely will set up their new investors for success over the long haul.

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Darren Tristano

Darren Tristano is President of Technomic Inc. Since 1993, he has led the development of Technomic’s Information Services division and directed multiple aspects of the firm’s operations.

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