Yum! Brands Inc., the owner of Taco Bell, Pizza Hut and KFC, is adding hamburgers to its lineup with a $375-million deal to buy Habit Restaurants Inc.
Yum on Monday announced an agreement to acquire Irvine-based Habit, which sells burgers; steak, chicken and ahi tuna sandwiches; and milkshakes at about 300 Habit Burger Grill locations — most of them company-owned — in the United States and China.
Habit Burger represents a new niche for Yum: fast-casual. The format, typically more expensive than McDonald’s and Burger King, still has drive-through windows and competes with chains such as Shake Shack and Five Guys. Habit has also added self-service kiosks.
The acquisition is expected to close by the end of the second quarter. Habit Burger will remain in Irvine with Chief Executive Russell Bendel staying on and reporting to Yum CEO David Gibbs. Bendel said recently that Habit had expanded its presence in China to seven locations and has seen interest from other potential international franchisees. The chain is also opening restaurants in Cambodia.
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“There seems to be a lot of appeal of the concept in Asia,” Gibbs said in an interview. “China is a good opportunity. They already have a good start there.”
Yum spun off its China division, Yum China Holdings Inc., in 2016, and the operator is one of that nation’s largest restaurant companies.
The deal, which will be financed with cash and available credit, also reflects the increasingly crowded U.S. restaurant market. The fast-casual format continues to grow in appeal as fast-food chains vie for customers with steep discounts and as higher labor costs compress profit margins. Yum sees Habit growing mostly with franchising, Gibbs said, and will tap into its existing franchisee base to open new stores.
Yum has shown willingness to buy and invest in other companies in recent years: It purchased a stake in delivery specialist Grubhub Inc. in 2018 and acquired QuickOrder, which makes software for online ordering. In August, Gibbs said Yum would consider acquiring another restaurant chain, adding that the company would look for a popular brand that had “lots of growth ahead of it.”
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While Habit is dwarfed by Yum’s other brands, there are benefits to buying a smaller chain, Sanford C. Bernstein analyst Sara Senatore said in a note.
“Yum has been intimating that it would be receptive to an acquisition,” she said. “We believe starting small is appropriate to mitigate risk and prove out the company’s ability to successfully integrate and grow a concept.”
Founded in 1969, the first Habit was located in Goleta, just outside Santa Barbara, and sold burgers for 24 cents each. The company now has more than 200 restaurants in California.
Yum shares were down 0.2% at $101.63 shortly before 11 a.m. PST. The stock rose 9.6% last year, trailing the Standard & Poor’s 500 index.
Patton writes for Bloomberg. Times staff writer Samantha Masunaga contributed to this report.
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Yum Brands is buying Habit Burger Grill for $375 million - Los Angeles Times
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