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Good Times: Four Reasons We Like Bad Daddy’s

Filed under Business, Fast Casual, Franchising, Management, Marketing, Menu

In April 2012, Good Times Burgers & Frozen Custard hired Heathcote Capital LLC, many assumed the Golden, Colo.-based regional QSR was seeking a buyer. But President-CEO said that on the contrary Good Times was looking to buy. This week 39-unit Good Times announced deals with Charlotte, N.C.-based Bad Daddy’s Burger Bar. spoke with Good Times’ President-CEO Boyd Hoback about the new opportunity, breakfast, dollar menus and more.

We spoke a year ago after you’d engaged Heathcote Capital LLC to seek an acquisition candidate. Some people were skeptical that you’d accomplish that, since “mid majors” don’t often do such deals. But you have done so with the agreements announced this week with Bad Daddy’s Burger Bar.
We went about it in a different way than we expected. We talked with the principals of Bad Daddy’s but they didn’t want to sell yet; it was just to early. They’ve developed several other brands and they think there’s a lot of potential for Bad Daddy’s. So we ended up joint venturing, with us equally owning the franchise development company and then our gaining our own rights to develop the Bad Daddy’s concept here.

Why was Bad Daddy’s the right fit for you?
A couple of things. First of all, we really like the concept. It has fantastic unit economics and the food is really good. We also liked its segment. We look at a lot of places in the fast-casual and self-serve burger and better-burger segments and it’s getting awfully crowded awfully fast. It’s hard to differentiate the concepts.

We liked that while Bad Daddy’s is burger-centric it’s not limited to just burgers. It has a pretty wide menu with a lot of innovative food. And it has a lot of opportunity over time to be even more innovative.

We also liked the stage where they’re at. They don’t really have a corporate infrastructure and didn’t want to build one. We have one and it can be leveraged pretty significantly. We’re pretty good on the processes, systems and operations side; they’re really good on the culinary side. We liked the prospect of marrying the two together.

When you were evaluating concepts, did you specifically want one with alcoholic-beverage service, which Good Times doesn’t have?
It wasn’t a requirement but we liked that aspect of it. We liked a concept that’s not really a bar, not a 2 a.m. concept, but that has the opportunity to do 20% of sales in bar sales, primarily though microbrews and craft beers. We like that for the volume it has and the margin it has. All of that leads to its solid unit economics.

We’ve said we were looking for three things. One was a differentiated concept with long legs and a long life to it. Second was really good unit economics: cash return and sales-to-investment [ratio]. Third was a management team that wants to stay involved. [Bad Daddy’s founders] Frank Scibelli and Dennis Thompson and their team don’t want to get out yet. They want to grow this concept.

Do you intend to offer opportunities to develop Bad Daddy’s to Good Times franchise holders?
No. It’s completely separate and a totally different concept. It’s a somewhat different skillset.

Are you at all worried about Bad Daddy’s being a distraction to your efforts to improve Good Times?
No, for two reasons. One is that we have a very capable team on Good Times and the second is that our line of sight is pretty clear: We’re going to continue to build out [Good Times] company stores in Colorado and we think there’s a lot of value in that. We’re continuing on the three-year same-store sales growth while also expanding Bad Daddy’s.

You’ve taken several big steps to update Good Times, including remodeling some of your older, double-drive-thru units. Is that continuing?
It’ll continue and accelerate. We have stores that are 25 years old now and we need to get better consistency in our brand presence and the reimaging does that. With most of the stores, the change is fairly cosmetic. There are a few stores that will be more extensive remodels. But we hope to complete that over the next 18 months. We’re seeing good results from those efforts: good sales increase and a positive consumer response.

Hatch Valley Green Chile Breakfast Burritos give Good Times a morning daypart.

You also have a third iteration of your restaurant that’s in-between the no-dining-room original stores and the 70-seat unit you’ve added in the past several years. Is the new model the one for the future?
Yes. We haven’t built any of the 40-seat stores yet but that’s what we plan on building. We started with small double-drive thrus with 800 square feet and then we went up to 2,300 or 2,400 square feet with dining rooms. We think the optimum model for us is probably in the 2,000-square-feet, 50-seat-dining-room range.

Is that dictated by what the marketplace wants or by what yields the best financials?
Both. Even in our seating stores, we still do an abundance of our sales at the drive-thru. We had been building 70-seat dining rooms. We think we can do the same [sales] or more volume with 50 seats and improve the unit economics a little.

Wendy’s hasn’t found the way to make breakfast work but you’ve added a limited morning daypart.
We did, but we took a different approach. We’d always stayed away from breakfast because it’s so hard to crack. And we didn’t want to just do one more egg-and-meat breakfast sandwich or biscuits. You can get that everywhere, including now Taco Bell, Sonic, Subway and others. There are slightly different versions of the same thing at all those.

A year ago we had done a promotion with a local, high-quality green chile here in Colorado and had taken a look at the proliferation of mom-and-pop $2 burritos. But nobody in QSR was doing it. What we liked was that part of our brand is our authenticity and using regional ingredients in more a hand-crafted approach. We were able to develop a Hatch Valley New Mexico green chile that has quite a bit of kick to it. It’s not your typical QSR product. We fashioned that into a variety of $2 breakfast burritos, which is really labor efficient. Our break-even point for the [morning] daypart was pretty low but we’ve about doubled it. We’re happy with it.

You’ve done it without significantly increasing labor?
We’ve increased labor a little bit but our flow-through on that daypart is still very profitable. Our operations team did a great of designing it in a labor-efficient way.

Will you hit your initial goal of having breakfast provide an increment 6% in sales?
We’re already well past that.

You recently rolled out a new chicken platform of all-natural chicken tenders. Is that going to be your primary marketing focus this year?
It is. We just rolled that at the beginning of April and we’ve increased our chicken category significantly. It’s also further brand support, because it’s an all-natural, hand-breaded product. We just back on television with the first support in three years, so we’ll be talking about that pretty extensively over the next three months, coming back with more television on our Hatch Valley New Mexico green chile and our Meyer Natural Angus beef.

Good, I was afraid you were giving up on burgers!
No, and that’s a good point. We know we need to get back sometimes and talk about our core products, which are burgers and fries. We have other innovations in the pipeline on that front and we’ll be talking about it from merchandising and marketing standpoints.

Will you shift marketing support from traditional to social media?
Yes, we’ve actually been doing that over the past 18 months. We’ve been fairly active. We still broadcast media is an important component but we think the digital, social side is as well.

Have you found it an effective place to be?
I think so. It’s more of a high-engagement, low-reach tactic. So far the people we’re contacting seem to want to engage with our brand. They take a lot more interest at a deeper level than the typical consumer.

A marketing tactic you haven’t used is the value menu or dollar menu. Can you continue to stay away?
We think so. We think that’s been the right move over the past few years. We got beat up pretty badly in the recession because we didn’t have that but it’s just not a game we can win at or even play effectively. Our image is top-end QSR both in quality and price point and we try to leverage that.

We still get some price choice across the menu but we can’t play at that [$1] level. Hopefully the economy will stay good enough that people will continue to be out spending money.

What do you see for the burger market in total? Can it continue to grow at the rate it’s managed over the past decade?
Honestly, when you look at the total number of stores, it’s still early. But I think there will probably be somewhat of a shakeout eventually. At the individual-unit ownership level there already has been some. There are guys who’ve gotten in and tried to make a go of it and haven’t made it. This market [Colorado] is a hotbed for those concepts.

But I think those that do it well and who try to provide a different experience and a different product will do well. We think there’s still a lot of potential. As you well know, burgers remain a staple. That’s not going to change. It’s just a matter of how we execute it. You have to offer some spin around burgers with nonbeef alternatives and healthy-perception foods and such, but when push comes to shove, people want burgers and fries and shakes.