Notwithstanding declarations of war against junk food by Health Minister Yaakov Litzman and statements such as “McDonald’s – Out,” 2016 was the year of the hamburger. Dozens of fast-food eateries opened in Israel last year, offering much more than a burger and fries. For example, there are now burgers with bone marrow, goose liver, or blue cheese and shrimps. The new establishments joined 550 existing ones that are also trying to reinvent themselves and contend with the growing competition. McDonald’s out? Not really.
“What’s happening with hamburgers is like a madhouse,” says restaurateur Yoram Yarzin, who’s just signed a deal to sell the Moses chain with its 11 outlets to the BBB chain for 35 million shekels ($9.14 million). “Many eateries have opened – one calls himself Hamburger Street and the other offers gourmet hamburgers, but ultimately they’re all patties,” he says.
“When we started the Moses chain 12-13 years ago we were kings – the first chain of premium hamburgers. Over the years many others were snapping at our heels,” relates Yarzin, who with his brother Ari is one of Israel’s prominent restaurateurs.
“It’s like everything else here – one person succeeds and everyone else tries to copy him. That’s the trend now, here and overseas. The hamburger business is attracting investors since entry requirements are minimal. You don’t need to be a chef to cook hamburgers, menus are limited and people love them. But now there are too many places and we felt the market was saturated. Now the good ones will celebrate, the mediocre ones will waste their time and the weak ones will waste their money.”
Yarzin says he opted out, choosing to focus on his and his brother’s other restaurants, such as Tony Vespa, Zozobra, Café Italia, Taqueria and Magazzino, since “restaurants make more money than chains do, at least for us they do. The Moses chain was profitable, but not in proportion to its size and the investments we made.”
Chefs cater to the public
The accelerated development of the hamburger business goes hand in hand with another recent trend: a changeover from upscale restaurants which cost millions to build, ones providing full service, to smaller restaurants set up at lower cost, sometimes consisting only of a counter, offering a trendy experience and high-quality food for lower prices.
“The culinary world is changing, fulfilling a need for cheap and instant delivery,” says Idan Spivak, a communications consultant in the culinary area at the Blender marketing company. “It started in recent months and is certain to grow in 2017. Prestigious restaurants are no longer being opened, nor are very large ones. Most people can’t afford them. Chefs realized this and are now catering to popular tastes. Some are opening restaurants for pita dishes while others are opening fast-food hamburger eateries, where hamburgers made of high-quality ingredients are on offer for reasonable prices.”
“When a developer comes to me wanting to open a restaurant, I recommend keeping it simple,” says Shahar Keren, a restaurant consultant. “Top-tier chef restaurants keep shutting down since they’re not profitable due to the costs of manpower and ingredients. If you open a hamburger restaurant you don’t need a high-grade chef. One should realize that 80% of restaurants and cafes don’t last more than two years since they run out of money. This can result from improper management of supplies or manpower. It’s a difficult business anyway, so one shouldn’t make it even more so. It’s better to open a business that’s easy to operate with a concept that’s clear to customers.”
Among the media-covered launchings in recent months one should mention the Susu and Sons hamburger restaurant, opened a month ago by chef Omer Miller together with restaurateur David Tur on Tel Aviv’s Rothschild Boulevard. It’s enjoying long lineups for most hours of the day. The former head of the Israel Football Association, Avi Luzon, has opened the first outlet of the URBUN chain. He intends to open several others as well.
Restaurateur Zviki Eshet offers a variety of smaller burgers in a restaurant he opened last week in his new food court at the ZOA House in Tel Aviv. Guy Provisor, the founder of the organic food chain Eden Teva Market, opened a kosher hamburger restaurant called Burger Factory Express two months ago, on Ibn Gvirol Street in Tel Aviv. He expects to turn it into a chain. Burger King has also reappeared in Israel, and the list goes on.
150m shekels annual growth
Hamburger restaurants currently comprise 12 percent of the restaurant market in Israel, with revenues of 2-2.5 billion shekels ($520-650 million), according to a survey conducted for TheMarker by the Czamanski Ben Shahar consultancy firm. Ahead of them are cafes, with business valued at 5.5 billion shekels ($1.4 billion) comprising 27% of the restaurant business; Italian restaurants, with an income of 3.5 billion shekels ($0.9 billion) taking 17% of the pie; and Middle Eastern restaurants, which make up 15%. The entire restaurant business is worth 19-20 billion shekels a year (around $5 billion), excluding value-added tax.
Hamburger sales grew by 150 million shekels ($39.2 million) in 2016, with the main target being people under 34. This is in contrast to cafes that cater to clients of all ages, and Middle Eastern and upscale restaurants which are frequented by older customers.
The question now is whether these revenues have peaked. “The hamburger niche is very saturated,” says Shai Berman, director of the Union of Restaurants, Cafes and Bars. “It’s an area everyone gets into since operational costs are low, but over the last two years so many new places have opened that a limit has been reached. That’s one of the reasons the owners of BBB decided that if they want to continue, they need to position themselves as a powerful and dominant player. They therefore decided to purchase the Burgerim and Moses chains [the latter pending approval by the anti-trust commissioner].”
According to Spivak, attracting customers makes chain owners try and offer increasingly “sinful” items, with whopping sizes, rich in calories and fat, and numerous add-ons. This attracts customers and fills the tills, since every add-on hikes the price of a hamburger. For example, Susu and Sons offers hamburgers that include lamb meat, bone marrow, goose liver and cheddar cheese, as well as lobster, bacon, chili jam, pineapple, egg salad and mushroom ragu.
Checking prices for a hamburger in a bun (with no additions and not as part of a meal) shows that McDonald’s offers the lowest price per 100 grams – 21.15 shekels – but that chains such as Burgers Bar, Burgerim and Burger Factory Express charge only slightly higher prices: 21.3 to 21.9 shekels per 100 grams. A hamburger at Burger Ranch will cost you 26 shekels per 100 grams. There are cheaper options when buying one as part of a family meal. Chains considered to be of higher quality, such as Agadir and BBB, charge 27.5 and 28 shekels per 100 grams, respectively. Susu and Sons sells cheeseburgers with no additions for similar prices. Prices can be substantially higher when ordering add-ons, such as an extra 25 shekels for goose liver or lobster.
Bigger chains are closing outlets
The Czamansky Ben Shahar survey shows that while in recent years many private hamburger joints have opened, since 2014 the bigger chains have been reducing the number of their outlets. Aside from McDonald’s, which added two new outlets, and BBB which added one, the others shrank or didn’t reduce the number of their restaurants. The Burgerim chain closed 13 outlets, Burger Ranch closed seven and Moses shut down two. Agadir and Burgers Bar closed one outlet each.
“The large chains that used to control the entire market are losing their hold,” says Tur. “People aged 20 to 40 with self-respect don’t eat at McDonald’s or Burger Ranch. These serve mainly children and youth. The culinary standards of the big chains are fixed around the world. Regrettably, there are people who created chains everywhere, selling franchises in bad locations only to make money at the expense of inexperienced people.”
“I don’t believe in chains,” says veteran restaurateur Eshet. In addition to the “America” food court he operates in Tel Aviv, he also operates a group of restaurants in the northern part of the city. “Standards at a chain are not the same, let’s face it. When you get a frozen pre-cooked patty from a factory, as is the case in these chains, it’s not like someone preparing it on the spot, from beginning to end, as we do. The model of franchisees also negatively impacts the chains. Some, like Moses, were trendy when they were small but when they became a chain lost their unique appeal, especially since some of their outlets operate as franchises [six out of 11].”
The owners of the big chains reject the arguments made against them, saying that ultimately the new ones will vanish while the chains remain. “Undoubtedly there is some saturation here, as evidenced by the return of Burger King with no masses rushing to buy their hamburgers,” says Ahuva Turgeman, CEO and one of the owners of BBB and Burgerim.
“Currently, every chef tries to make special hamburgers, but I believe that during 2017 the chains will beat this trend of premium burgers. In the chains a customer knows what he’s getting, with varied menus offering vegetarian and vegan options, as well as salads.”
She adds that “we too know how to make upscale burgers – this year we’ve added hamburgers with Emmental cheese and coleslaw to our menus, as well as hamburgers with goose breast with onion jam in red wine, and other items. Moreover, prices are better at chains, if one calculates per gram of meat.”
“Chains have a built-in advantage since they have their established quality and customers know what to expect,” says Yuval Orgad, one of the owners of Burger Ranch. “The number of restaurants that shut down is much larger than in previous years. It’s hard to survive in this business. There’s competition over every customer coming to the mall.”