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Smashburger beefs up

by Richard Collings and Demitri Diakantonis  |  Published February 22, 2012 at 10:49 AM
Smashburger Master LLC, the private Denver-based "better burger" restaurant chain, is contemplating filing for an initial public offering or an alternative method to raise cash for a planned expansion, according to chief executive David Prokupek.

Speaking during an interview at a recent industry conference, Prokupek said the burger purveyor and its parent, Icon Burger Development Co. LLC, are "always looking at opportunities to bring in additional capital."

Prokupek explained in an e-mail message last week that the company does not intend to file for an IPO in 2012.

Smashburger has "tremendous interest and opportunities for capital from sources around the globe," he said.

An industry analyst said that Smashburger could make a logical IPO candidate in the next 18 to 24 months. In providing the time frame, the analyst said the company has a lot of growth opportunities and the current economic conditions are favorable for restaurant chains to file to go public, adding that Smashburger needs the capital to fund store growth.

Prokupek said the company is not likely to expand through acquisitions, but rather through organic growth. He said that it was unlikely that Smashburger would be an acquisition target in the near term, as investor Consumer Capital Partners' long-term plan is to hold on to the business.

To date, Smashburger has raised $25 million from outside investments since its founding in 2008, Prokupek said. The company has two outside investors, including joint venture partners in certain markets; and the management team also has a stake, he said. Prokupek declined to comment on the investors or investment terms.

Smashburger, whose competitors include Five Guys Enterprises LLC's Five Guys Burgers and Fries, In-N-Out Burgers Inc., and Union Square Hospitality Group LLC's Shake Shack, has enjoyed rapid growth due to the explosion in popularity of "fast-casual" chains serving up fresher beef. In the past four years, Smashburger has grown to 140 locations, with half of them franchisees and the other half company-owned, Prokupek said.

This year, the hamburger chain plans to expand by 60 locations, 40 of which will be franchisee-operated and the remainder owned by the company. The new restaurants will be opened in markets including Chicago, Los Angeles and Miami.

In 2011, Smashburger had between $100 million and $125 million in systemwide sales, which include sales from both franchise-owned and corporate-owned restaurants, according to Prokupek. He said the company projects that it will have $160 million to $170 million in systemwide sales in 2012. Prokupek said that when the Smashburger concept was unveiled four to five years ago, there was a real opportunity in the burger category, as fast-food giants such as McDonald's Corp., Wendy's Co. and Burger King Holdings Inc. were not ensuring that their burgers were in line with consumer tastes or trends, or investing in their "burger equity," but rather focusing on products such as coffee and chicken.

Although those chains have refocused on improving the quality of their hamburgers, with Wendy's reformatting its signature product and McDonald's offering burgers on a regional basis, Prokupek said he believes that consumers don't only want a great burger, but a great experience as well.

Smashburger is now eyeing international growth, with plans to open stores in Kuwait and Canada this spring, as well as an expansion into Latin America, Prokupek said. The company's planned international expansion is already under way and not dependent on outside investments.

He said the company determined that the market for Smashburger was as big internationally as it is in the U.S.
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Tags: Consumer Capital Partners | David Prokupek | Smashburger Master LLC
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Richard Collings

Reporter, consumer & retail

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