Boyd Hoback, president and CEO of Good Times Restaurants Inc. (NASDAQ: GTIM), talks with the Opportunist’s Managing Editor Leslie Stone about his company’s record sales growth and its recent purchase of a stake in Bad Daddy’s Burger Bars.
Hamburgers have become as synonymous with America as baseball and apple pie. In the 100 or so years since the first ground beef patty was sandwiched in between two slices of white bread, the “burger” has become its own restaurant category and now represents a $40 billion industry in the United States. Fast-food chains such as McDonald’s, Burger King and Wendy’s rule the category overall, but there is a growing segment of consumers who have an appetite for a better burger. For a quarter of a century, Good Times Restaurants Inc., based in Golden, Colo., has been serving this niche with its high quality, all-natural hamburgers, chicken tenderloins, fresh-cut fries, fresh squeezed lemonade and frozen custard. “Good Times Burgers & Frozen Custard is our legacy brand, and our free-standing drive-thru concept operates at the top end of quick-service restaurants,” says Boyd Hoback. “Our main point of difference is that we are the only fast-food concept in Colorado with an all-natural platform. We only serve vegetarian-fed, natural beef and chicken that contains absolutely no steroids, hormones or antibiotics.”
According to its recent financials, the chain has been generating record sales and expects to finish its fiscal 2013 with a double-digit increase in same store sales for the year. “We do things the big guys cannot and won’t do—from a product to a marketing to an operations standpoint,” Hoback says. “It took us a while to learn that but, honestly, that is why we have so much traction right now. We compete against some of the power brands in the world of fast food, so we had to stake a very unique claim. The Good Times brand falls under the umbrella of fresh, all natural, hand-crafted food using unique regional ingredients and that has gained enormous traction for us over the last three years, as our average sales volume has grown over 25 percent.”
Boyd Hoback: Yes. A little over a year ago we started looking for another growth concept. We considered over three dozen, with an eye toward something that we could expand on a national scale. Long story short, we went with Bad Daddy’s Burger Bar because we were impressed with their concept and the principals involved. One of them is Dennis Thompson, a serial entrepreneur in the restaurant business who successfully developed and grew several concepts, having founded Lone Star Steakhouse and Bailey’s Sports Grille, which then became Fox & Hound, which then become Total Entertainment. Most recently, he founded Firebird’s Wood Fired Grill and sold it to Angelo, Gordon & Co., a large private equity firm.
Opportunist: Is this a joint venture?
Boyd Hoback: They didn’t want to sell Bad Daddy’s—they felt they had perhaps sold Firebirds too early—but it became clear we were a great match because they wanted a company with a longstanding infrastructure and systems and processes that could accelerate Bad Daddy’s growth. We have rights to build company owned Bad Daddy’s locations in Colorado, Kansas and Arizona and we jointly own the franchise company, which we will manage under a management agreement.
Opportunist: How many current Bad Daddy’s restaurants are there?
Boyd Hoback: As of December there will be seven stores open in North and South Carolina plus one that is licensed to HMS Host in the Charlotte [Douglas International] Airport. The founders will continue to develop restaurants in the Mid-Atlantic and the Carolinas and we are developing restaurants in the three states I mentioned: Colorado, Kansas and Arizona. We jointly own the franchise company and are going to be franchising on a national basis to sophisticated multi-unit operators that are looking for another growth brand and that are used to being franchisees.
We just hired a vice president of franchise and real estate development who came to us from Buffalo Wild Wings. He is now leading the charge for us on Bad Daddy’s franchise development across the country.
Opportunist: What are your goals for Bad Daddy’s?
Boyd Hoback: We have a platform company in Good Times and a growth concept in Bad Daddy’s. We plan on building several hundred Bad Daddy’s restaurants because the concept is very unique. It’s a high volume, suburban gastro pub operated out of a fairly small box. We recently completed a small secondary offering of $5.5 million with an additional $9 million in warrant proceeds available, so we are well capitalized to accelerate growth. We anticipate that we will follow a similar model to Panera Bread and Buffalo Wild Wings of a mixture of company owned and franchised restaurants.
Opportunist: Please tell us more about Bad Daddy’s.
Boyd Hoback: It’s a chef driven concept with artisan, hand crafted food. Even though its core business is gourmet hamburgers and beer, it operates above all the other casual themed competitors. It is Zagat rated and was voted among the top 25 burgers in the United States by USA Today. The other aspect that attracted us is the unit economics. It provides a very high return on investment model. It operates out of about 3,500 square feet, which in our business is a pretty small footprint and yet the stores they have in North Carolina are averaging $2.5 million in sales out of that small footprint. So, that’s why it makes it a very franchisable concept and one that we think has national growth potential. The upper income demographic concept focuses it to upscale kinds of sites, but there are literally hundreds of potential markets across the country.
Opportunist: What is unique about the menu?
Boyd Hoback: The menu at Bad Daddy’s is gourmet burgers, chopped salads, appetizers with a full service bar that is focused around craft micro brews. However, the menu items are very unique and have a culinary level quality to them. So, what’s exciting for us right now is not only has our core business grown like it has in the past—never in the last 25 years have we had a growth curve like we are now experiencing—but we can leverage our entire G&A infrastructure with the Bad Daddy’s growth.
Opportunist: How did you get into the restaurant business, Boyd?
Boyd Hoback: I have been in the restaurant business since I was 15 years old. Throughout high school and college I worked in the operations side of the business. My degree is in finance and after graduating college I enrolled in law school, but the company I was working for at the time gave me the opportunity to learn the finance and marketing and real estate—all the non-operating sides—of the restaurant business and I liked it so much I didn’t go to law school. Technically, I have worked for one company all this time—going from bus boy to CEO. My work with the prior concept ended when we started Good Times and spun that concept off.
Boyd Hoback: I enjoy that it’s so varied. The competitive landscape is always changing and always moving, so we have to be flexible and adaptive and innovative. I find that very challenging. I also enjoy the fact that it’s a people business and we provide a lot of opportunity to people and a strong positive culture for people to grow within. In this business you have to be both creative and analytical. I tend to be fairly analytical and I think I bring a good balance between left-brained and right-brained thinking.
Opportunist: Who is your main competition?
Boyd Hoback: For Good Times, believe it or not, one of our biggest competitors is Chick-fil-A. We tend to skew a little bit higher income, more female and because we have the all-natural platform we are attracting the same customer who wants to buy high quality fast-food products. We also compete against the fast-casual restaurants Five Guys and Smashburger to some degree. There are four tiers of our business sector: fast food, fast casual, casual themed and polished casual. Bad Daddy’s operates in the polished casual segment and Good Times is at the top end of the fast-food segment.
Opportunist: What would you like to tell potential investors?
Boyd Hoback: We made the decision to stay public and become a legitimate public growth company, which is a very important inflection point. I believe there is a huge amount of upside opportunity not only based on our current performance, but particularly as we ignite this growth. Our system-wide revenues for Good Times are about $35 million, but we anticipate growing that exponentially with the addition of Bad Daddy’s.
I think what is compelling about our story right now is, first of all, our core brand has had record growth. And we’ve had over three years of same-store sales growth—and that has been accelerating in the last nine months to the point where we are showing more than double, even triple the industry average on our sales growth. Our core business is debt free with positive cash flow and an infrastructure that we are going to leverage over a larger enterprise by growing Bad Daddy’s. We believe we are significantly undervalued and will see a lot of opportunities in our stock in the public markets.
Opportunist: What’s in the pipeline for 2014?
Boyd Hoback: In 2014, particularly as we continue to grow Good Times, we are laying the platform for large scale growth in Bad Daddy’s. We will have our first Colorado Bad Daddy’s open in January and four or five other locations after that. We also are in discussions with very high profile, multi-unit franchisees and plan to sign several multi-unit franchise development agreements next year.
More than anything, we want to have highly differential brand positions with both Good Times and Bad Daddy’s. We want Good Times to be a dominant brand in Colorado, and we want to take Bad Daddy’s national. For us, that really is what drives long-term success. The other part of that equation is for us to continue to develop a really positive growth culture for our people. If we do those two things and we have great processes and systems in place then the financials will take care of themselves.
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in Florida. Follow her on Twitter at @les7989.
Good Times Restaurants Inc. -http://www.gtrestaurants.com
Good Times Burgers - http://www.goodtimesburgers.com
Bad Daddy’s - http://baddaddysburgerbar.com/