A growing Los Angeles cheeseburger chain is targeting the region's inventory of second-generation restaurant spaces for expansion with a goal of opening drive-thrus in underserved, lower-income neighborhoods.
On the heels of opening its first location at the end of last year, StormBurger signed two leases and is scouting for more space in Los Angeles — ideally, locations left behind by similar fast-food concepts. Its first outpost opened in December as a conversion of an empty Church’s Chicken in Inglewood.
It’s a strategy that's gaining traction among restaurant chains in expansion mode. Such companies are targeting underutilized drive-thrus and restaurants left behind by larger chains that are consolidating, moving into bigger spaces or moving out of Southern California, Michael Pakravan, senior vice president and national director of retail at Matthews Real Estate Investment Services, told CoStar News.
These sites tend to be easier to obtain because they have already negotiated the notoriously complicated Los Angeles development process, helping "mom and pops compete with national chains," said Pakravan, who is advising StormBurger on site selection.
Certain players like Arby's, Burger King, Carl's Jr. and Church's Chicken have been retrenching to focus on other markets, leaving real estate room for other chains to grow in Los Angeles. Retail tenants have vacated 2.7 million more square feet than they have leased in the past year, according to CoStar data.
StormBurger, meanwhile, wants to become something like the more affordable, burger version of Raising Cane's, a chicken chain in the process of a national expansion to more than 1,600 restaurants.
Site selection
The fast-casual burger chain — founded by former Hooters franchisee Mike Storm — debuted in December at 1500 N. La Brea Ave. in Inglewood.
StormBurger recently signed a lease for a second location in Long Beach and is negotiating a deal for a third restaurant in Compton.
The company said it wants to provide high-quality food in neighborhoods often overlooked by major fast-food operators. It said its lower-tier pricing strategy, focused on a high-volume model, differentiates it from larger chains that have raised menu prices in recent years, instead driving profits through beverage, fries and onion ring sales.
Drive-thrus are a key part of the company’s business model, but with many cities reluctant to approve new ones, StormBurger is relying on existing, pre-permitted spaces when it can.
“A lot of cities are moving away from allowing drive-thrus. Some have moratoriums, especially in places like Santa Monica and Koreatown, where they want higher-density, mixed-use development,” said Pakravan.
StormBurger’s team scouted 30 to 50 locations for its first outpost before settling on a long-vacant, 1,100-square-foot former Church’s Chicken in Inglewood that is located near a Popeyes that generates $7.8 million in annual sales. The conversion took 17 months, with the company deciding to dedicate every inch of space to kitchen operations, resulting in a format with pickup and ordering windows but no indoor seating.
Changing competition
Fast-food chains have been shrinking their dining rooms for years as more customers opt for pickup and delivery. Jersey Mike’s has cut its average in-room dining space from 1,500 square feet to 1,000 square feet to lower costs, while many national brands have reported that up to 70% of their sales come from drive-thru orders, including third-party delivery pickups.
That drive-thru bet appears to be paying off. Sales for StormBurger's first location have doubled expectations, Pakravan said. But securing drive-thru locations for future growth remains a challenge.
“There’s a lot of competition,” he said. “Corporations can hire expediters, lobbyists, and the best architects, but mom-and-pop operators can’t navigate the process as easily.”
StormBurger’s investors include Jonathan Foster, the president and CEO of Angeles Wealth Management, who recently increased his stake in the company.
Pakravan believes the brand has the potential to grow into a major player. “There’s no limit. This could be the next Raising Cane’s,” he said.
The company is eyeing additional locations in Downey, Northridge, Panorama City, Van Nuys and West Adams, prioritizing areas with high foot traffic, dense populations and a need for new dining options.
Finding the right sites is just one hurdle. Convincing landlords to lease to an emerging brand rather than a national tenant is another. At the Inglewood location, the landlord, a family trust, was unwilling to invest in renovations or offer free rent during construction.
“We had to accept some dead rent on our first location because there was no other way to get into that drive-thru space,” Pakravan said.
Building new locations from the ground up takes about 30 months, making second-generation sites an attractive alternative.
“For a brand like Stormburger, moving into a former Burger King with an existing drive-thru is a major advantage,” Pakravan said. “It allows them to expand much faster than waiting for new construction.”
Still, food and beverage chains may not be the highest and best use for these second-generation spaces, according to Blake Kaplan, managing director at JLL, who helps restaurant tenants find space in Los Angeles and across the country.
"Be patient and make sure that that's the right use because neighborhoods are changing, labor is changing, rents are changing," Kaplan said.