Fatburger Corporation - Founder Sells in 1990

Founder Sells in 1990

In 1990, Yancey sold out to a group of investors led by Island Trading Co., a New York investment firm connected to Island Records founder Chris Blackwell. Fatburger Corporation was formed to effect the purchase. Yancey continued to operate two of the restaurants, while Warlick joined the new owners as they began to restructure the business and establish new procedures for franchising, which resumed two years later. Before then, however, Fatburger opened a company-owned store in Las Vegas in 1990 on the strip. A second unit opened in Las Vegas in 1992, a move that caused some disagreement within management. Warlick, a supporter of Las Vegas expansion, chose to leave the company at this point. His belief in the Las Vegas market would be justified, however, when these stores became the top grossing units in the chain. He would return to Fatburger in 1995 and a year later emerged as the president, serving under chief executive officer Glen Hutloff. Also during the first half of the 1990s, Fatburger took steps to distinguish itself from fast food competitors like McDonald's and Burger King. Big board menus with pictures were removed, and while orders were made at the counter, the food was brought to customers' tables. In addition, chairs and tables designed to promote turnover were replaced by comfortable booths. Hutloff told Food & Beverage Marketing in 1997, "We want to be a chain that doesn't feel like a chain.… We want to feel like a neighborhood place." As a result, Fatburger was positioning itself into a challenging niche, neither a fast-food operation nor full-service diner.

By the end of 1997, Fatburger had 29 units, of which 12 were corporate units, but management held ambitious dreams of much greater growth. To help in its efforts to move into suburban areas like Santa Clarita Valley and Orange County, the chain introduced a smaller version of its signature Fatburger, the Baby Fat, which featured a two-ounce patty. The smaller sandwich was intended for children and allowed the chain to attract more families. At this stage, management was talking about growing to 250 units within five years. Fatburger had also established a relationship with basketball-star-turned-entrepreneur Earvin "Magic" Johnson, hoping to piggyback on his move into some 15 cities over the course of the next three years. In the short-term, Hutloff was targeting Atlanta, Houston, and Detroit.

As was often the case with Fatburger, these plans for expansion failed to materialize, although the chain managed to move into two new markets: Arizona and Washington state. In 1999, Texas-based Restaurant Teams International, Inc. announced that it had an agreement to buy Fatburger Corporation for $8 million. RTIN professed even bigger plans for the chain, announcing that it intended to develop nearly 500 franchised Fatburger restaurants over the next five years. A year later, however, the sale was still not completed. Then, in October 2001, Magic Johnson stepped in, after keeping his eye on the chain for the past few years. His Johnson Development Corporation in partnership with GE Capital Franchise Finances bought Fatburger. Other investors included the former president of Motown Records, Jheryl Busby, and Darren Star, the creator and executive producer of the HBO television series Sex and the City. Warlick was also a major shareholder and became the president and chief executive officer of the company.

Fatburgers' new expansion plan called for 100 new restaurants, 80 percent of them franchises, to be rolled out in five years. Possible new markets—with an emphasis on areas where Johnson Development Corporation already had a presence—included Michigan, Indiana, Ohio, Illinois, Pennsylvania, Colorado, Texas, Georgia, New York, and the Carolinas. Franchisees were expected to commit to opening at least ten restaurants in a new market. Franchisees for a single-unit were required to possess a net worth of $250,000 (not including their house and car) and to have on hand a minimum of $150,000 in cash. Franchisees agreed to pay a 5 percent royalty on net sales, earmarked for corporate services, and 2 percent that would go into a national advertising fund. In addition, they were required to spend 1 percent of their net sales on local marketing efforts.

Magic Johnson's involvement with Fatburger created a great deal of excitement about the chain, finally realizing its potential. One of his friends, TV personality Montel Williams, was quick to assemble an investment group, FB Colorado Inc., to acquire the Colorado territory. Johnson had introduced Williams to Fatburgers some years earlier, and he now claimed to visit a Los Angeles Fatburger restaurant roughly twice a week to eat a double Fatburger with cheese, bacon, and chili. Williams had started out his television career in Colorado, often visited the state, and was preparing to buy a house there, making it a natural location for his Fatburger operation. In December 2002, he opened his first Fatburger restaurant in Aurora City Place.

Company Perspectives:

At Fatburger, we've been doing things our own way since 1952. Making custom burgers, one at a time, for individuals like you.