The Rundown – Your weekly SPAC Deep Dive (08/21/21)

BurgerFi: Building on a Sustainable Niche 

BurgerFi is a fast casual burger chain, which specialises in hormone free and antibiotic free hamburgers, French fries and hot dogs. Since inception, the chain has been one of the fastest growing concept restaurants in the US and now boasts over 125 branches.

BurgerFi went public through an SPAC merger with Opes Acquisition Corp last year in a deal valuing the company at $143 million. Since the announcement, BFI stock is down over 37%, as the company has faced several challenges with the second wave of the pandemic. But with a renewed focus on its digital strategy and omnichannel customer experience, the company is expected to be one of the beneficiaries of the economy unlocking over the next few months. 

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Sustainability Driving Sales 

BurgerFi is primarily known for its high quality product sourcing with strict protocols in its supply chain. The company is known for not exposing its Angus beef to steroids, antibodies, growth hormones chemicals or additives. The chain is so strict about product quality that only about 1% of the beef sourced in the United States meets its criteria.

In the Pandemic era of dining, where reusable menus are a thing of the past and individually wrapped plastic utensils have become the norm, talks of sustainability have somewhat stalled. But despite the recent challenges, BurgerFi is committed to continue its efforts in sustainability and recycling.

The chain operates on a eco-friendly philosophy and environmentally friendly design including the design of the restaurant itself. This includes the company using glass bottles as materials for their chairs and walls which are made from renewable natural wood. Amidst the pandemic, the company is looking for ways to combat food waste by recycling used cooking oil into diesel fuel.

BFI also ensures ethical sourcing of its beef from ranches committed to raising cattle free range and vegetarian fed, which is a great ESG initiative. BurgerFi was also the first burger restaurant to carry the Beyond Burger, which is a 100% plant-based patty which tastes exactly like meat but is suitable for vegans. The introduction comes after a growing demand for plant-based alternatives to traditional meat, both to increase sustainability by reducing carbon footprint and to improve the health of consumers. 

Consolidating Sales in Core Markets

BFI provides an Omnichannel customer experience regardless of if the consumer is at home, in the restaurant or on the road. The company is using the capital from its SPAC deal to open in 25 new locations this year, with 9 currently under construction. This is particularly beneficial for the company as retail rents have fallen drastically during the pandemic.

BFI is leveraging Its dominant positions in states such as Florida and growing its presence in the Southeast, Mid-Atlantic and Northeast, by perusing multi-unit franchise deals. The company plans to capitalize on the synergies of opening franchise in cities like Jacksonville, Orlando, Nashville, Tampa and Miami to increase brand awareness, reach new customers and increase average unit volumes.

The company is also looking to expand internationally and has recently opened up its first outlet oversees in Saudi Arabia this year. The company recently explore two drive-through’s this year and exploring more locations to expand their offering to.

The current unlocking process should allow for more travel in the future, resulting in more customers through the drive through. BFI unveiled ‘Fi on the Fly’ in May 2021, which is essentially the company’s version of a food truck and serves corporate events, sporting events, birthdays, weddings and music festivals. 

Digital Strategy and Ghost Kitchens 

The pandemic has accelerated the need for digital expansion and BFI is perfectly poised to take advantage with the digital infrastructure it had built up over the years. BFI has partnered with delivery services including Door Dash, Grub Hub, Postmates and UberEATS, enabling to compete more fiercely with other brands. 

The company was also an early adopter of ghost kitchens, entering the arena back in June 2020 as the entire industry grappled with the pandemic that created a surge in off premise business. This has helped BFI leverage the traffic flowing into its delivery services by partnering with companies like Reef Kitchens and Epic Kitchens.

This enables the company to expand quickly into new areas with limited investment. The company plans to expand in cluster markets like Nashville and Atlanta through its partnership with Reef Kitchens with 15-20 units in the second half of this year. 

Additionally, BFI has introduced a loyalty rewards program that has nearly 300,000 members and continues to grow as more customers order digitally. The company is aiming to increase membership to one million users in the next few years and plans to leverage its mobile app and website to push special promotions, marketing offers and sneak preview items exclusively to loyalty members. 

Financials and Valuation  

After being impacted by Covid restrictions for over a year, the company is likely to be a beneficiary of restrictions being lifted. This is apparent from Q1 revenues, which came in 32% better than last year at $11 million versus $8.3 million.

While the company reported a loss of $8.2 million vs a profit of $0.8 million on account of the company repaying its revolving credit line early. This coupled with the $34.7 million in cash suggests that the company has plenty of capital for the planned expansion this year. 

The planned Capex as a result from this is approximately $15 million in 2021. The company has established that it has significant runway for growth coming out of the pandemic and is poised for significant chain and revenue expansion.

The company currently trades at a Price/Sales of 3.88, which is a valuation premium considering the industry median being around 1.41. But sustainability should give the company pricing power as there has been evidence that customers are willing to pay for high-quality sustainable food. 

Bottom Line

BurgerFi continues to expand through its Omnichannel strategy of Dine-in, Online deliver, Drive Through, Food Trucks and Ghost Kitchen. BFI is looking to continuously differentiate itself from other fast food chains through a sustainability approach, both in terms of sourcing raw materials and the restaurants themselves.

BFI continues to grow rapidly, both through its digital initiatives and its online infrastructure. The stock has seen a sell off over the last few months, especially due to concerns surrounding revenues declining due to a resurgence in the pandemic. This may be the perfect opportunity for investors to look at a sustainable fast food chain which is rapidly growing. 


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