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WHATABURGER DISCOVERS ‘IT’S THE BURGER, STUPID’

By Jon Springer

Variety may be the spice of life, but it was nearly the kiss of death for Whataburger. But now the Corpus Christi, Texas-based fast-food chain is finding that some tough strategic decisions, extending from the menu to the real estate department, are effecting a turnaround for the 52-year-old Southern icon.

While many of its industry competitors are seeking growth through new menu items and international expansion, Whataburger is doing just the opposite. As part of a “back-to-basics” movement, it has pared items from its menu, closed a number of restaurants and refrained from additional growth in Mexico (at press time Whataburger was “rethinking” its association with a Mexico-based franchisee, a company official said).

Whataburger, with 585 locations, is just as determined as the others to grow, but it will do so only through its core strength: serving good hamburgers in places where its brand can be meaningful.

“Our growth will be very controlled and very conservative by standards of our industry,” said Todd Coerver, Whataburger group director of operation services. “We’re going to do what is good for Whataburger.”

For now, that means growing between the pockets of the country where Whataburger is already strong: Texas and the Florida panhandle. Specifically, Whataburger is targeting the Interstate 10 and Interstate 20 corridors in Alabama, Louisiana and Mississippi for corporate- and franchise-owned restaurants. According to Wayne Pawlik, Whataburger’s director of real estate, those areas collectively could see about 50 new units a year over the next three years.

It had been some time since Whataburger was in an expansion mode. Although well known in its native Texas, an over-aggressive franchising program in the 1970s and 1980s scattered Whataburger units all over the map. Separated from the home office and outnumbered by national and regional chains in such cities as Las Vegas and Memphis, Tenn., Whataburger’s franchisees struggled to compete, and the company began experiencing a slow decline in sales and profits, Coerver explained.

The company tried to spark better sales through expanded menus, he said, but that strategy only seemed to further obfuscate Whataburger’s strengths. Though popcorn shrimp and steak sandwiches made a few fans, such items tended more to dilute the hamburger image, which had always been the restaurant’s calling card. Other items, such as fajitas, were scrapped because their preparation interfered with hamburger production.

Rebuilding has been a long process. Coerver points to the 1994 appointment of Tom Dobson as CEO as the moment the company began its turnaround. Dobson is the oldest son of company founder Harmon Dobson, a fast-food pioneer who built Whataburger into a Texas powerhouse before dying in a plane crash in 1967. Tom Dobson installed a new management team and spent much of the 1990s “rebuilding the infrastructure” that allowed Whataburger to grow once again around its core values.

The fact that the company is a family-run, private enterprise helped things happen, Coerver explained.

“Anytime you remove a menu item, you’re giving away sales,” he said. “It may be only 4 or 5 percent, but you can imagine how difficult a decision that was for us to make. If we were faced with quarterly earnings expectations and outside pressure over our heads, it would have been even more difficult.”

Because its trademark A-frame roofs are not to every landlord’s taste, Whataburger rolled out a flat-roofed alternative. It prefers pads opposite busy discount stores.

But the changes have been working. Sales have grown for five years running, Coerver said, and Whataburger’s profits over the past seven years have exceeded those over the first 44 years of its history combined. Its 2001 sales were $376.4 million, a 9.4 percent increase versus the year before. This May the company received the “Hot Again” award from Nation’s Restaurant News.

“We’ve had remarkable growth since we began turning things around after 1993,” Coerver said. “Things couldn’t be better.”

Whataburger’s “fast-casual” service offering differs from many of its burger-joint competitors. Customers who dine in place their orders at the counter, then have their meals delivered to their table. This reduces time standing and waiting around the front of the store and allows for the extra few minutes it may take to cook a meal to order. Meanwhile, servers circulate around the dining area offering condiments and drink refills.

Fast-casual, something of a buzzword in the restaurant industry, is an emerging concept that attempts to squeeze out a niche between the speed of quick-service restaurants and the quality and service of full-line operations. Hoping to attract time-starved customers in search of a good meal, fast-casual operators range from bakery-cafés to market-style eateries and scaled-down restaurants offering takeout.

“We believe we’re a pioneer in the fast-casual concept,” Coerver said.

Other points of difference in Whataburger’s operating strategy include 24-hour service at all its units, including breakfast service from 11 p.m. to 11 a.m. It also accepts credit and debit card payments.

“We get a lot of customers who come in hungry after the bars have closed, and we’ve found that our average ticket on credit card orders is higher than cash,” Coerver said.

Also unlike its competitors, Whataburger doesn’t aggressively market to children.

“We don’t do movie tie-ins, gimmicks or over-the-top promotions,” Coerver said. “Our philosophy is to appeal to parents who grew up with Whataburger and recognize our value to them. To kids, it makes Whataburger an acceptable alternative to McDonald’s.”

Whataburger has evolved on the real estate front as well, making changes not only in the locations it chooses but also to the buildings it occupies. Known around the Southwest for its striking, orange-and-white-striped A-frame roofs, the chain has found the design to be unpalatable to some developers and co-tenants. Though Whataburger prefers the 23-foot A-frame for its signage effects and brand identification, it has come up with an alternate flat-roofed store design if that is the center’s preference, explained Pawlik.

“We softened the design a bit,” Pawlik said. “It’s a little more modern [a] design that some people prefer. … We want to be a neighbor of the development we’re in.”

Its location philosophy has changed from what Coerver described as “finding the cheapest piece of dirt we could,” to finding the best. According to Pawlik, the company ideally wants pad locations on hard corners fronting high-traffic discount stores. Being in sounder financial shape has helped secure those spots as developers and leasing agents have become more comfortable dealing with Whataburger.

“Historically, our leasing opportunities were affected by concern over credit issues, but that’s not been a problem for five or six years now,” Pawlik said. “We’ve proven ourselves to be a viable, healthy company, and that’s helped us find the locations we want. We want developers to know we’re out there, that we’re a real player in the marketplace today.”

Whataburger is flexible and can move quickly on deals if necessary, Pawlik added. It generally prefers to do a new build but has had some success converting old fast-food locations, especially in Texas.

A year ago Whataburger signed up its first new franchisee in more than 10 years. Whataburger is looking to strengthen its hold along the Southern border of the United States (Whataburger also has a sturdy presence in Arizona and New Mexico).

“There’s a demand there not yet met — it’s low-hanging fruit,” Pawlik said. “We understand the market, and we want to position ourselves to maximize the benefits there.”

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