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Chanticleer Holdings (HOTR) has certainly been busy over the last couple of years. The owner of a partial stake in Hooters of America has exclusive rights to several international territories and continues to expand the popular wing chain in new markets. Aside from Hooters, Chanticleer is busy acquiring small chains in the United States with an emphasis on fast casual. The company should see strong results as it begins to monetize its international markets and latest acquisitions.
Spoon Bar & Kitchen
Chanticleer's latest acquisition is the one that I think shows the most promise. Chanticleer acquired Spoon Bar & Kitchen, a single location upscale seafood restaurant in Dallas. The reason for my bullishness comes from the company's immediate intent to turn the brand into a fast casual concept and begin expansion soon. While taking an upscale brand and turning it into a fast casual concept may seem like a bad idea, it certainly worked for PF Chang's. The popular Asian cuisine restaurant took its brand and made a fast casual concept called Pei Wei that has been successful.
On the flip side, seafood leader Red Lobser, a unit of Darden (DRI), has seen sales plunge and recently gave up on a fast casual concept. Same store sales were down 4.5%, 4.3%, and 4.6% for the months of September, October, and November respectively at Red Lobster locations. Total traffic to locations dropped over five percent in each of those three months. Red Lobster has 678 total locations in the United States.
Executive chef John Tesar of Spoon Bar & Kitchen will remain with the restaurant and is working with Chanticleer on the fast-casual version of the concept. Chanticleer chief executive officer Mike Pruitt had this to say, "This is an exciting opportunity for Chanticleer and chef Tesar to expand the Spoon brand into a new, fast-casual dining concept. In fact, with John's culinary knowledge, he will be invaluable to all of our brands."
However, I believe Chanticleer can see success with the new seafood concept through its relationship with the executive chef, a focus on fast casual with other brands, and key regional relationships that should expand the brand into new markets. Initial plans call for the opening of Spoon fast-casual restaurants in the Dallas area. The original location won several awards from magazines like Bon Apetit, Conde Nast Traveler, and Esquire.
Back in 2011, Chanticleer orchestrated a buyout of Hooters of America that made it a small minority owner of the company. The company then worked on a June 2012 IPO to give it the necessary capital to start its international expansion of Hooters in several territories it had gained exclusive rights to. Chanticleer now owns the exclusive rights to open Hooters in South Africa, Hungary, England, and parts of Brazil. The company also has a joint venture in Australia for Hooters.
Currently, Chanticleer has 5 Hooters in South Africa, 1 in Australia (with 2 coming soon), 2 in Europe, 1 coming soon in Brazil. A December presentation showcased the potential for Hooters in several international markets:
· Australia: Will open two new Hooters in the first quarter. Sees total potential at 15 locations.
· Brazil: opening one Hooters in the spring of 2014, plans on opening more in the near term to capitalize on the 2014 World Cup and 2016 Summer Olympics. Sees total potential at 30 locations.
· Europe: Believes it can support 3 Hooters locations in Hungary. Mentions Poland and Eastern Europe as the next targeted markets.
· South Africa: Sees total potential at 15 locations.
· United Kingdom: Bought the Nottingham Hooters for $3.15 million and gained access to UK territory. Nottingham ranked as the fourth largest international Hooters (by sales) and 15th largest overall (by sales). Company's focus will now be on expanding Hooters in Manchester and Newcastle. Sees total potential at 15 locations.
Chanticleer believes it could support 75 Hooters locations in its current international territories. Obviously, with 11 current locations, there is plenty of upside left in shares.
Aside from international expansion, it appears Chanticleer is also buying Hooters franchises in America. In January, the company announced the acquisition of two locations in Oregon and Washington. The company said, "We believe the northwest presents a great strategic opportunity for Chanticleer to grow the Hooters brand as well as some of our other concepts we own." As you can see, Chanticleer will likely replicate this model throughout the United States by acquiring Hooters locations and then introducing its other brands into the area.
Other acquisitions by Chanticleer have set the company up nicely to expand into the fast casual market. Chanticleer paid $560,000 for a 56% controlling stake in Just Fresh, a fast casual healthy brand with five locations. Chanticleer also bought American Roadside Burgers, a five unit fast casual burger concept. The purchase price of $3.6 million was one of the larger deals done by Chanticleer in its history.
I expect these chains to grow into the double digits over the next two to three years as Chanticleer begins regional expansion. The company also has already made its intent to franchise both brands known and it could announce several deals soon that could bring shares up further.
Chanticleer has plans to franchise both Just Fresh and American Roadside Burgers. Chanticleer also owns a small stake in Appalachian Mountain Brewery (OTCPK:HOPS), a craft brewer that should see some upside as Chanticleer pushes the company's beers into its own restaurants. Chanticleer made a small $500,000 investment Beacher's Madhouse, a recent Las Vegas MGM Grand Hotel attraction that opened on 12/31/13. Chanticleer obtained the rights to the United Kingdom, South Africa, and Australia for futre Beacher's locations.
Shares of Chanticleer were up 48% in 2013. The company seems to have a firm grasp on the fast casual market, which remains one of the hottest in the restaurant industry. Through acquisitions, the company has fast casual concepts centered on healthy fresh food, burgers, and seafood, giving it diversification across the restaurant sector. Strong international markets should also carry the Hooters brand and provide an eventual gateway to international franchising of its own brands. The company is several years out from 100 or more locations, but when it gets there, shareholders should be pleasantly rewarded.