Whataburger in recent months has made a new push into other states, continuing the expansion blitz that its sale to a Chicago investment group was predicated on three years ago.
What was once a regional burger chain is making moves to Texas’ east, west and north.
Nearly 900 miles from its San Antonio headquarters, the town of Colorado Springs, Colorado, is getting its fifth Whataburger, just months after its first location opened.
What will soon be the first Whataburger in the Atlanta area broke ground weeks ago, in a ceremony complete with orange hardhats, orange trucks and orange shovels and attended by county leaders and the local Chamber of Commerce.
Kansas City got its first Whataburger late last year in part with financing from Kansas City Chiefs quarterback Patrick Mahomes, a public fanatic of the brand. The opening proved so popular that the local department of transportation warned residents to expect traffic delays.
More locations are planned in Missouri and Tennessee, not to mention the recently announced expansion of San Antonio’s test kitchen.
The rapid growth of the Texas-centric burger chain isn’t just due to its soaring revenue. It’s also because of a strategy the company committed to three years ago. That was when the Dobson family, which founded the chain, sold its majority ownership to BDT Capital Partners, a Chicago investment firm. The sale announced in June 2019 was made with expansion plans in mind.
“Whataburger has grown significantly over the years. And, in order to keep satisfying our customers, we’ve been exploring different options to expand the brand and introduce it to new audiences,” said Preston Atkinson, then-president and CEO, in a statement at the time.
BDT was found to be the best option for that, Atkinson continued. “They want to preserve it while they help us continue growing a sustainable, competitive business over a long period of time. They don’t plan to change our recipe for success.”
BDT, started by a former Warren Buffett adviser, also owns Krispy Kreme and Panera Bread and is known primarily for investing in family and founder-owned businesses. Whataburger’s leadership at the time said the investment group would have the resources to finance an expansion of the chain’s footprint. But doing so is no easy task.
“They’re competing with everyone from McDonald’s to Wendy’s and Five Guys,” said David Henkes, a senior principal at food service consultancy Technomic. “Limited service burger category is one of, if not the most, competitive restaurant industry.”
But Whataburger has a leg up on the competition, Henkes and other analysts say, because of its relatively high-quality ingredients and the loyalty of its existing customer base.
“They’re continuing to grow pretty dramatically in the face of what’s going on in the industry,” Henkes said. Sales revenue was more than $3 billion in 2021, marking more than 14% growth over the year before and more than 40% over its 2016 numbers, according to estimates from Technomic.
Like many restaurants with drive-thru and other delivery options, Whataburger didn’t see a dent in sales when the pandemic struck in 2020 and has since expanded its curbside and delivery services.
On the strength of that revenue, Whataburger’s expansion appears to be unfolding strategically, analysts say, with a focus on fast-growing areas in adjoining states.
“Whataburger has a very strong brand in Texas, a lot of loyal consumers, and that loyalty spreads,” Henkes said. “You want to expand into markets where your brand is already known.”
A new franchising policy has also helped. The chain’s new Chicago owners in 2020 opened the doors to new franchising for the first time in two decades.
James Turcotte, Whataburger’s executive vice president and chief development officer, told the San Antonio Business Journal at the time that “franchising allows us to open more stores in more areas and do that faster and efficiently.”
He and other company leaders have stressed that the chain will continue to open many company-owned restaurants.
Out of Whataburger’s 873 locations at the end of last year, 131 of them were run by franchise groups and 742 were company-owned, by Technomic’s count.
Larry Reinstein, CEO of Dallas-based restaurant consultancy LJR Hospitality Ventures, said many large national chains like Burger King and Wendy’s have traditionally relied on franchising for rapid expansion and more so in recent years.
“It can be a terrific way to grow if systems are in place and the selection of franchisees is good,” he said.
Among its advantages are the fact that good franchisees often know the local real estate market better than their faraway corporate superiors. Franchising also puts the burden of raising funds on the store owner. “You expand more rapidly, and you use other people’s capital,” Reinstein said.
There are risks, however. In decades past, Whataburger has been bruised by repeated litigation with franchisees, for which the settlement of one resurfaced as a new lawsuit in 2015. Franchise-led expansions at the edge of Whataburger’s domain also struggled to compete in oversaturated markets like Las Vegas and Southern California, where one franchisee’s group of long-held stores shut abruptly in 1987.
Reinstein said he expects Whataburger to be smart about who it grants a franchise, given the brand’s value and reputation for high quality. And as long as they do so, “Whataburger has the potential to go anywhere.”
Whataburger did not respond to requests for comment.