Private equity firm Roark Capital has officially announced its acquisition of a majority stake in Dave's Hot Chicken, a fast-growing restaurant chain renowned for its spicy chicken offerings. Although the financial details of the transaction remain undisclosed, CEO Bill Phelps indicated during an appearance on CNBC's Squawk Box that the deal's reported valuation of approximately $1 billion is quite accurate. This acquisition marks a significant milestone for the brand, which started in a Los Angeles parking lot in 2017 and has rapidly expanded to over 300 locations through franchising.
Dave's Hot Chicken has experienced a remarkable growth trajectory, with U.S. sales surging by 57% last year alone, surpassing $600 million in revenue, according to data from market research firm Technomic. This exponential growth is part of a larger trend in the restaurant industry, particularly for chicken-focused establishments, fueled by the Chicken Sandwich Wars that began with Popeyes' viral product launch in 2019. Emerging brands like Dave's and Raising Cane's have challenged established chains such as Yum Brands' KFC, contributing to the overall growth of the chicken category.
One of the key factors in Dave's success is its ability to cater to younger consumers who are increasingly seeking bolder flavors in their meals. The restaurant offers a variety of spice levels for its chicken, ranging from mild to the infamous Reaper level, which requires diners to sign a waiver due to its extreme heat. Co-founder and Chief Business Officer Arman Oganesyan recounted a story of a diner who challenged her boyfriend with a taste of the Reaper, underscoring the adventurous spirit that attracts customers to the brand.
Dave's Hot Chicken is known for its streamlined menu, primarily featuring oversized chicken tenders that can be served as sliders, allowing patrons to enjoy their meal while multitasking on their phones. Oganesyan highlighted that the sliders are designed to be easily eaten with one hand, enhancing the dining experience for busy customers. This focus on quality over quantity has been a crucial element of the chain's success, as they maintain their founders’ original practices while continuing to expand.
Bill Phelps, who has extensive experience leading Wetzel's Pretzels for 25 years, joined Dave's in 2019, shortly after its inception. The co-founders, including Oganesyan, Dave Kopushyan, and brothers Tommy and Gary Rubenyan, remain actively involved in the company and plan to continue their roles post-acquisition. Phelps expressed that the timing of the investment was ideal, as Dave's was poised for significant growth, making it an attractive opportunity for Roark Capital.
Looking ahead, Phelps envisions that Dave's Hot Chicken could expand to as many as 4,000 locations worldwide over the next decade. This ambitious growth plan is further supported by Roark Capital's international supply chain capabilities, which can help reduce costs and provide franchisees with the resources needed for expansion. By staying true to its core values and avoiding the pitfalls of conventional industry practices, Dave's aims to maintain the high quality of its signature chicken even as it scales.
In addition to the strategic advantages of the acquisition, Phelps has outlined plans to reward employees significantly. The company intends to offer substantial bonuses to numerous staff members, from support center employees to restaurant assistant managers, a decision that has already created 20 millionaires within the organization. This initiative reflects the company’s commitment to its workforce and its long-term vision for success.
The acquisition by Roark Capital represents a pivotal moment in the journey of Dave's Hot Chicken. With a solid foundation built on quality and a clear vision for expansion, the brand is set to thrive in the competitive restaurant landscape. As it continues to capture the interest of younger consumers and maintain its unique offerings, Dave's is well-positioned for a bright future in the culinary world.
