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Habit’s Plan: Franchises to Drive Expansion

Aims to double size by 2027

Irvine’s Habit Burger Grill is approaching the two-year mark of its $375 million sale to restaurant giant Yum Brands Inc. (NYSE: YUM), owner of Taco Bell, KFC and Pizza Hut and one of the world’s largest restaurant operators, with a valuation now near $35 billion.

The deal, the first acquisition for Yum Brands in years, was presented as an opportunity to turbocharge growth the fast-casual burger business, which at the time was approaching 300 stores, having nearly doubled its restaurant count over the prior decade.

Growth has taken place, but not at an overly rapid rate: The Habit now counts about 335 restaurants in 14 states, having added 22 new restaurants this year with a few more set to open by December.

That’s a far cry from the nearly 7,000-unit count at fellow Irvine-based chain Taco Bell, which brought in nearly a quarter of the Louisville, Ky.-based parent company’s $13.9 billion in systemwide sales last quarter.

Taco Bell is the largest Orange County-based restaurant chain, with $12.6 billion in systemwide sales last year, while The Habit is OC’s seventh-largest restaurant chain, reporting $588 million last year.

Division system sales at The Habit grew 12% last quarter to about $130 million, the company reported on Nov. 2, though same-store sales were down 1%.

Digital sales at The Habit now account for 33% of its sales, Yum CEO David Gibbs told analysts earlier this month.

Franchise Focus

Part of the slower-than-planned store rollout is due to timing. The deal, announced at the start of 2020, closed in March of that year, days before the pandemic began shutting down restaurants in the U.S. and across the globe.

The Habit is now back in growth planning. It aims to nearly double its base of restaurants by 2027 by adding 40 to 50 spots a year.

A longer-term plan is for The Habit to hit the 2,500-unit mark.

Franchising appears to be the strategy of choice to reach its short-term goals. The Habit started its franchise program about seven years ago, hiring John Phillips as the vice president of franchise development.

“We already have several franchise groups as part of The Habit family, and we will continue developing relationships with our existing franchise partners and new ones,” Chief Brand Officer Iwona Alter told the Business Journal.

Currently, there are 67 franchised locations for the chain in the U.S.

The Habit has signed two multi-unit deals this year in the Southern California regions of San Bernadino and Riverside, with close to a dozen locations in development.

California Base

Founded in Santa Barbara in 1969, California is by far The Habit’s largest market, with more than 230 locations.

Phillips says the company wants to eventually have about 400 locations in the state.

California was where the company introduced its drive-thru model in 2010. That Northridge location quickly became one of its highest-volume restaurants. Its first OC drive-thru opened in 2013 at Irvine’s Von Karman Plaza.

Starting with second-generation buildings, or previously occupied spaces, restaurant sales for drive-thrus grew faster than the standard end cap properties, officials said.

Another notable company offering is The Habit’s 11 food trucks that the chain uses for special events as “kitchens on wheels.” These portable restaurants primarily serve Southern California territories, Phillips said, but The Habit is looking to drive them into the Northern California area as well.

Expansion Sites

Outside California, The Habit is currently looking to expand into Oregon, Virginia, Florida, as well as Texas, Phillips said. The Habit is also planning to boost its international presence, especially in Asia-Pacific, where KFC and Taco Bell have large operations, officials say.

The Habit currently has 13 international locations, in China and Cambodia.

It costs between $1.2 million and a little more than $1.6 million to open a company restaurant, according to franchise regulatory documents. Stores on average bring in around $1.8 million in sales, those documents indicate.

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