BurgerFuel hopes to open 1000 new stores over the next eight
years and plans to utilise existing franchisees within the
Subway sandwich chain's worldwide network as it expands into
the United States and other potential markets like China,
Britain, India and Latin America.
Shareholders have this afternoon approved a deal that will
see Franchise Brands - an investment firm established by
Subway founders Fred DeLuca and Peter Buck - purchase a 10
per cent stake in the Auckland-based gourmet burger chain
that currently operates 55 stores in New Zealand, the Middle
East and Australia.
Franchise Brands has the option to increase its stake in
BurgerFuel to 50 per cent over the next eight years.
BurgerFuel chief executive Josef Roberts said the target to
open 1000 new stores by 2022 was an aspiration rather than a
projection, but it wasn't beyond the realms of possibility.
"That's a big number, but potentially this partnership [with
Franchise Brands] could help deliver this to us," he said.
"It's certainly possible - if you crack the US market there's
a thousand stores right there."
The US fast food market generates annual sales in excess of
US$200 billion and is predicted to reach US$237 billion by
2017, according to market research firm Euromonitor.
Roberts said BurgerFuel should open its first US stores
within six to 12 months.
California, Texas or the northeastern state of Connecticut
(where Subway is based) were possible entry points, he said.
The New Zealand company is targeting existing Subway
franchisees in the US - and other markets - who may want to
branch out into a new brand and open a BurgerFuel store.
"The whole point of this deal is we can access applicable
Subway franchisees who are in a position to grow their
business beyond a Subway," said Roberts. "So effectively
that's a catchment market worldwide, everywhere."
Subway is the world's biggest fast food chain, in terms of
store numbers, with more than 41,000 locations across the
globe, compared with McDonald's roughly 35,000.
Roberts said some Subway franchisees may find themselves in a
position where they cannot expand the sandwich chain any
further and BurgerFuel could offer an avenue for growth.
"That has to be sanctioned by Subway so hence the
relationship with BurgerFuel."
Roberts said BurgerFuel could also utilise Subway's existing
infrastructure in new markets, such as administration and
procurement of food supplies, as well as equipment and
building materials for new store fit-outs.
BurgerFuel is also embarking on a major change of its
international franchise model.
Until now, the company has granted master franchise licenses
for entire countries in its Middle Eastern markets such as
the United Arab Emirates, where the license is held by
Dubai-based Al Khayyat Investments.
Roberts said BurgerFuel would be the direct franchisor to
individual store operators in the United States, where a US
subsidiary and office will be established.
The same business model will apply in other new markets the
"In the future it's unlikely we'll do whole country deals,"
he said. "We'll adopt the Subway approach, which is
territories and individual store franchises."
Roberts said the US gourmet burger market was less developed
than New Zealand's and Colorado-based Smashburger would be
BurgerFuel's main competitor.
The Kiwi company would also compete against other US fast
casual restaurant chains, such as New York-listed Chipotle
Mexican Grill, he said.
BurgerFuel doesn't view the major fast food multinationals -
like McDonald's, Burger King, KFC and Carl's Jr - as
competition as it expands around the globe.
"We call it all share of stomach but in the end we see
ourselves, like in New Zealand, positioned away from those
big multinational brands," said Roberts.
He said BurgerFuel was interested in expanding to any market
where it could sell a $10 burger.
"South America is a key market and obviously the emerging
markets like China and India are of interest," Roberts said.
"The UK is also a potential market. There are 10 big markets
a available that we would want to go into."
He said securing store locations would be one of the biggest
challenges of Burgerfuel's US expansion.
BurgerFuel shares more than doubled to hit an all-time high
of $3.10 after the Franchise Brands deal was announced last
Franchise Brands' 10 per cent stake, at a price of $1.35 a
share (BurgerFuel's share price when talks towards the deal
began in April 2013), will be made by way of a placement of
$5.9 million new BurgerFuel shares and the purchase of $2.16
million shares from the company's majority shareholder, Mason
In December BurgerFuel reported a 35.4 per cent increase in
total system sales, which includes sales by franchise stores,
to $30 million for the six months to the end of September - a
record for the half-year period.
Net profit fell to $95,691 from $308,372 in the same period
of 2012. The company said the profit drop resulted from
investments the firm was making for future growth.
Operating revenue of the listed franchisor firm rose 25.5 per
cent to $6.73 million in the half-year.