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Burger Wars With Johnny Rockets CEO

If you have a hankering for a burger nowadays, the choices are endless. From McDonalds , Wendy's , Burger King, Jack in the Box — the beef battle has a huge number of gladiators. One company that has been growing its menu of opportunities is Johnny Rockets.

The company will celebrate its 25th anniversary this month. The company draws in around $300 million a year in revenue and its international expansion has been an interesting story. I decided to ask, John Fuller, CEO of Johnny Rockets about the milestone for his company but more importantly is food inflation going to leave a bitter aftertaste in consumers mouths and take a bite out of his profits.

LL: Johnny Rockets is celebrating its 25th anniversary on June 6. How has business changed over the years?

JF: We have a very basic business model—encompassing a simple menu and easy operating plan—that allows our concept to succeed in almost any environment. Our Founder created a well-lit restaurant where patrons could enjoy classic comfort-foods and timeless music in a clean, fun environment. Although our marketing methods have evolved to keep up with customers' lifestyles and we've tweaked the design options, a bit, you can still find the same core attributes at all of our 300 restaurants, around the world.

LL: What kind of trends are you seeing with customers in terms of the size of their order and what they are choosing?

JF: As with most things, consumers want value. We've learned that value doesn't always mean getting more food for your money...sometimes it means getting a higher quality of food and greater attention to the overall dining experience. We constantly work on improving the taste, texture and satiety of our core menu items: Hamburgers, Fries and Shakes.

LL: How is international expansion? Which countries show the most promise?

JF: In a word, it's phenomenal. We've opened 130 restaurants, added 41 new Franchise Partners and entered 8 new countries—all during the past three years. In addition to the U.S., there are now Johnny Rockets restaurants in 15 countries, including 14 in Mexico, 7 in Kuwait, 6 in U.A.E and 4 in Canada.

The most recent additions include Philippines, South Korea and Panama. Our goal is to open 40 new restaurants this year, and 200-300 within the next 3-5 years, 50-67% of which will be outside of the U.S. Currently, there is tremendous interest in our brand, internationally. This year, we will open restaurants in Dominican Republic, Russia and Libya, and are working on selling franchising rights in China, Indonesia, Australia, Brazil, India, Singapore and Vietnam.

LL: McDonald's is re-vamping its look- ambience is everything in dining. How would you characterize the fast food wars right now in how restaurants are trying to beef up profits?

JF: We don't necessarily see refreshing our image as a direct line to increasing profits, however, we do see it as a way to create trial for new customers and a means to keep landlords happy.

During the next few months, we will unveil a number of new color schemes, floorplans and design elements that provide more variety for the venues we occupy. In recent years, in fact, we've launched a number of new looks in non-traditional locations that include casinos, airports, military bases, cruise ships, theme parks and sports arenas. Obviously, we realize the importance of providing the look, feel and operability that our centers demand.

LL: Your hamburgers are made of fresh, hand-pressed meat. That means you have more exposure to the price of beef versus a McDonald's which uses frozen meat and they can buy in bulk. If McDonald's has warned of an increase in food costs between 4 percent and 4.5 percent both in the US and Europe this year. How much of an increase will you see since you use a fresh product?

JF: We are lucky to employ a purchasing team that prepared for commodities inflation by consolidating our distribution from 37 warehouses to 27, with more density and lower inbound freight costs. They also lowered our distribution margin before diesel prices jumped and the new margin reduction schedule lowered FC almost 160 BPs (1.6%).

Additionally, they booked chicken and bacon purchases when corn prices were favorable and booked both fry oil and mayonnaise before soybean prices rose. So, while everyone else has been reacting to higher commodities costs, our team has been able to concentrate on improving the quality of our beef (to all natural, never frozen), our bun (going to a 4.5" gourmet potato roll), our chicken (with larger tenders and enhancing the size of our breasts), our hot dogs (upgrading to Vienna all-beef dogs) and our tuna (now the best solid albacore available). Therefore, we expect our overall increase for customers to be negligible.

6. LL: Is rising inflation eating into your margins?

JF: Of course, inflation affects us on every side, from commodities and utilities to marketing and employment costs. Hopefully, however, we've implemented enough pre-planning and negotiated enough cost efficiencies, this past year, that we—and our Franchisees - will still be able to make comfortable profits. And, due to the fact that a number of our restaurants are located in somewhat "inflation-proof" venues—entertainment centers that benefit from year-round revenues—the balancing effect is pretty favorable. We have nothing but good news in our current long-term forecasts.

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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."

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