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Fatburger CEO: We'll Survive the Better-Burger Shakeout

Tickers in this article: BK DIN MCD WEN
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NEW YORK ( TheStreet) -- For those of us on the East Coast, Fatburger may not ring a bell, given the dozens of burger chains including Five Guys Burgers and Fries , Smashburger, Jake's Wayback Burgers and others furiously opening stores.

But, come this spring, that will change. The 60-year-old Los Angeles-based burger chain will open the first of 10 locations set for New York City through a partnership with Riese Organization, one of the largest restaurant-management companies in the area.

So-called better-burger restaurants are taking the fast-casual segment by storm. (Fast-casual sits between limited-service chains like McDonald's (MCD) and full-service restaurants such as DineEquity's (DIN) Applebee's.)

>>>How Five Guys Got Us Eating Its Burgers

While the name Fatburger seems to be a nod toward its calorie-rich menu offerings like the XXXL Fatburger, the Fat Salad or the Fat Fries (Skinny Fries are also available), the restaurant's name is actually derived from Hollywood's Golden Age when terms like "fat cat" and "fat city" were the rage. Today, that feeling has remained with the brand. Fatburger is popular among Hollywood celebrities and has even been cited in songs by several iconic hip-hop stars.

While Fatburger reached its 60th anniversary last year, the company went through a rough patch. Ten years ago, Fog Cutter Capital Group acquired Fatburger. CEO Andy Wiederhorn came on in 2006 and has been aggressively turning the once-struggling chain around by expanding internationally. In 2003, there were just 40 Fatburgers, mostly on the West Coast. Today there are 150 stores across the world, with about 300 either under construction or in development in 27 countries. Last year the company brought in $100 million in system-wide sales, up 22% from 2011.

Fatburger and other better-burger chains have nowhere near the number of outlets as their fast-food competitors, but the opportunity is immense. Consumers are looking for value-driven meals, but at the same time are more conscious of how their food is prepared and where it comes from.

"Consumers definitely are challenging the quick-service brands to step it up, and it's very hard when you're serving a fast-food product to try to declare that all of a sudden you're serving a fast-casual, gourmet product," Wiederhorn told TheStreet this week.

The question is: Will there be room for all of these burger competitors?

Wiederhorn says no.

"There'll be a shakeout in the better-burger and gourmet-burger segment like there always is in an industry where you have new or a lot of competition that comes in at once," he says.

"The players who have been long-standing participants, like Fatburger, Five Guys or In-N-Out, will always command a customer following and loyalty, because those customers know what the original burger experience was like, and they'll continue to follow it," Wiederhorn says. " Of the new ideas that come into play, a lot of those ideas don't have a financial model that really supports it, so they can't scale it. It might work in a big city in a high-profile location, but it doesn't work in average locations or in Middle America."