Out of about 20 Back Yard Burgers across the state, half-brothers Brandon Cox and Jamie Borel own the only one that is still standing.
Cox, 36, who has worked at Back Yard Burgers since he was in high school, and Borel, 43, who played baseball at East Carolina University was drafted by the Detroit Tigers and played three years in the minor leagues, bought into the franchise and built their own location, which opened on Leesville Road in July 2002.
At first, they said, business was great, with year-over-year increases in revenue that peaked at $1.4 million in 2007.
Then the Great Recession eroded those increases and the larger Back Yard Burgers brand stumbled through three chief executive officers and into bankruptcy as 115 out of its 180 locations closed, including all of the North Carolina restaurants except the Raleigh one owned by Borel and Cox.
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Now, there are 23 corporate-owned stores and 42 franchisee-owned locations.
“Sometimes you have to get smaller to grow again,” said David McDougall, who is the fourth Back Yard Burgers CEO since 2007, but the first to win Cox and Borel’s respect.
McDougall, who started working for Back Yard Burgers in 2013, said he is using a three-prong strategy for improving the company, including focusing on unit-level profitability, improving relationships with franchisees and returning to the brand’s roots of a quality burger with a price point that is above McDonald’s but below fast-casual burgers that sell for $8 and more.
Those efforts and related changes seem to be paying off, as Back Yard Burgers experienced a 5.8 percent companywide increase this year compared to the previous year, an improvement that McDougall hopes will yield a growth phase in 2015.
Back Yard Burgers is among many smaller brands that stumbled during the recession with leadership that unsuccessfully flirted with value meals and didn’t listen to the franchisees, said Mick Riddiough, president of The Riddiough Group, a Charlotte-based consultancy that helps start or turn around franchise brands.
Leadership is a key driver during such challenges and turning to value menus is a move that often doesn’t pay off as it puts businesses in very competitive markets while stressing owners with more volume but slimmer margins, he said.
“History will always show that people will pay a little bit more for a product that they will feel better about,” Riddiough said.
Recession leads to struggle
Back Yard Burgers started after Lattimore Michael began grinding and cooking hamburgers in a Cleveland, Miss., grocery store in 1987.
Michael later opened a stand-alone, double drive-thru restaurant, and folks started coming from miles away for the 1/3-pound black-Angus burgers that tasted like they were cooked in someone’s backyard.
The company’s headquarters moved to Memphis, Tenn., and then to Nashville after Michael sold the business in 2007 to an investment group.
The company, McDougall said, struggled during the recession as it had an excessive amount of debt from the acquisition and had to pay for 45 company-owned restaurants.
“A number of them were not performing well,” he said.
The company filed for Chapter 11 in U.S. Bankruptcy Court in Delaware in October 2012.
Corporate standards slip
Cox and Borel grew up in Kansas, just outside of Kansas City, Mo., but their family moved to North Carolina in the 1990s after Borel received a baseball scholarship to East Carolina.
Borel went on to play in the Detroit Tigers farm system for three years, before returning to Greenville to finish his degree.
The half-brothers had frequented a Back Yard Burgers in Kansas, and Cox worked at the restaurants in Kansas and Southern Pines starting in 1995. They soon started thinking about opening their own.
“We just loved the product, believed in it,” Borel said. “We grew up with one in Kansas and then with him working there, it just kind of went together.”
The two invested $950,000 to buy into the brand and built out a location near Leesville Towne Center, which was under construction at the time. They obtained startup capital through a bank loan co-signed by their parents.
Cox and Borel said they started noticing corporate standards slipping around 2008, but the challenges started to really concern them when the franchisor proposed changes such as adding a value menu.
“We were not at all interested in going that route,” Borel said.
The franchisor also proposed going to a quarter-pound burger and cutting the company’s seasoned fries, the brothers said, which at the time accounted for two-thirds of the french fries sales at the Raleigh location.
There was mass resistance among a number of franchisees, the brothers said.
The company eventually moved forward under the premise that the remaining corporate-owned Back Yard Burgers would implement and test the CEO’s ideas, and each had their own plans for improving the struggling brand and corporate stores. Meanwhile, the Raleigh restaurant and other franchisee-owned stores could stick to what they were doing.
Franchisees across the state closed as some owners started independent brands or bought into other franchises, Cox said.
During the turmoil, the brothers said, they continued to focus on their store’s customer service and consistency by coming in day after day, catering to their regulars and the students who stream in from nearby Leesville Road High School.
From 2008 to 2010, the Raleigh business saw a slight reduction in revenue, holding steady at about $1 million each year.
Revenue started to rise in 2012 and is expected to come in at $1.175 million this year, Cox said. They paid off their nearly $1 million loan last year.
When McDougall arrived in early 2013, three weeks before the company exited Chapter 11, he sought a brand study and learned consumers were willing to pay a little more for a burger, but they expected it to be consistently “hot, fresh and delicious,” which the survey indicated wasn’t always happening.
He stared focusing on improving profitability in stores, increased communication with franchisees and sought to return to the company’s roots.
“I love that he is just constantly trying to get there,” Borel said. “Never relaxing on where we are now.”