March 21 (Bloomberg) -- Topped with truffle cheese or port-caramelized onions and not always involving beef, designer burgers aren’t exactly unheard of in New York City. That’s not stopping Los Angeles nightclub owner Sam Nazarian from bringing his vision of “fine dining fast-food” to the Big Apple.
One of Nazarian’s Umami Burger restaurants will open this year in Manhattan, part of a national expansion of the Los Angeles chain. The chief executive officer of SBE Entertainment Group LLC, who bought a 50 percent stake in Umami in July, said he plans to reach more than 20 locations by the end of the year, including in some of the company’s luxury SLS hotels.
Nazarian’s upscale burger push is the latest example of a restaurant industry betting that diners are coming back, ready for new experiences and more willing to open their wallets, as the economy emerges from its long slumber. Sales at the 500 largest U.S. dining chains advanced 3.4 percent to about $242 billion last year, compared with an increase of 1.8 percent in 2010, Chicago-based researcher Technomic Inc. said on March 19.
“Consumer awareness, especially around burgers, is evolving,” Nazarian said. “These gourmet burger chains hit a certain psychographic -- somebody who is very quality conscious, who is willing to explore and get out of their element.”
Though cracking the New York market is never easy, Americans’ decades-long love affair with burgers makes premium burgers a good place to be, with 48 percent eating a burger at least once a week, compared with 38 percent in 2009, according to Technomic.
Still, with everyone from Five Guys Burgers and Fries to McDonald’s Corp. hawking a better burger, the upscale-burger craze risks reaching its limits.
“There’s definitely this whole new niche that’s emerged,” said Bob Goldin, an executive vice president at Technomic. “In the next 12 to 24 months, we’re going to start seeing signs of saturation” among the better burger chains, Goldin said. “You’re going to see a shakeout.”
Nazarian sees his premium restaurants and burgers as apart from the pack. Umami serves up hand-chopped ahi tuna with wasabi flake, and offers wine and martinis in some locations. These are the latest evolutionary twist on the Southern Californian burger, in the land where McDonald’s and In-N-Out Burger began.
In Manhattan, Umami will face “really strong competitors” that charge under $10 for a burger, said Conrad Lyon, a senior equity analyst in Los Angeles for B Riley & Co. There are scores of them, including New York Burger Co. and J.G. Melon.
The mid-range fancy burger, costing about three times as much as a Big Mac, is big in Los Angeles, the second-largest U.S. city. Dave Gregg, a cameraman for movies and Web series, said that’s because “it hits a sweet spot.”
“It’s a little bit snooty,” said Gregg, who lives a few blocks from an Umami. “But it doesn’t break the bank.”
Umami -- named after the Japanese word for the “pleasant savory taste” found in foods like mushrooms and truffles -- has six outlets in and around Los Angeles and one in San Francisco. The build-your-own chain The Counter, which started in Santa Monica in 2003, has 22 in California and franchises in nine other states and Ireland. Short Order, which opened in midtown Los Angeles four months ago, has recorded sales at 125 percent of expectations, said managing partner Bill Chait.
“There’s no question it’s driven by the economy,” said Chait, whose partners include chef Nancy Silverton of the Mozza Restaurant Group. The 116-seat restaurant, which has a full bar, sells burgers for $12 and up that are made of ingredients including seared albacore, grass-fed lamb, range-fed pork, rapini and melted celery.
“The days of eating $50 steaks are probably over” for many, Chait said. Consumers are “stepping down,” he said, “without having to go to a Burger King.”
Americans’ love for the burger hasn’t waned since the first McDonald’s fare was served in San Bernardino, east of Los Angeles, in 1948. Sales at fast-food burger restaurants rose about 3 percent to $67 billion last year, according to Technomic. In the so-called better burger segment, including Five Guys Burgers and Fries, Fuddruckers and Smashburger, sales increased about 18 percent to almost $2 billion, according to Technomic, which tracks chains with more than $10 million in annual revenue.
Umami’s prices start at $10 for the most basic offerings, including the Hatch Burger, with four types of green chilies. The most expensive is the Ahi Tuna Burger, at $15.
Founder Adam Fleischman said Umami offers “fine-dining fast-food,” albeit with valet parking and full bars at some locations. In Manhattan, he said, it will succeed by catering to high expectations of diners with many choices.
Fleischman said he also expects a shakeout. “I think it will affect the franchise players specifically,” he said.
Interest in fancy burgers has been fueled in part by cooking shows, such as cable network Bravo’s “Top Chef,” Nazarian said. “The names and descriptions of ingredients in food are becoming part of our daily vocabulary,” he said. “This awareness is breaking that chain mentality.”
Back in the 1990s, “you never had a chef with a credible resume doing anything like the burger,” said Sang Yoon, the former executive chef at Michael’s who bought a Santa Monica pub called Father’s Office in 2000 and made it into one of the region’s first burger-focused restaurants. He opened a second store in L.A. in 2008 and said demand has been so strong he’s considering expanding.
Chef Wolfgang Puck has been serving a variation of his $23 grilled prime burger with smoked onion marmalade, garlic aioli and Vermont farmhouse white cheddar at Spago in Beverly Hills for at least 10 years, according to the restaurant.
Yoon’s signature creation is a dry-aged beef patty with caramelized onions, Gruyère and Maytag cheeses, applewood-smoked bacon and arugula on a soft roll. At $12.50, it’s about $9 more than the Double Double at In-N-Out, the regional chain with a cult-like following.
At the Counter, which has a restaurant in Times Square, the menu offers choices of meat, bun, cheese and sauce, claiming 312,000 possible combinations. The average meal, according to founder Jeff Weinstein, costs about $14.
“The fact that it’s all freshly made with quality ingredients has definitely helped drive the demand in this town,” said Weinstein, who is opening stores in Saudi Arabia and Bahrain. “I see this trend continuing, not just in Los Angeles, but everywhere.”
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