Whatabattle!

What’s the beef between Texas’s most iconic burger chain and its most loyal franchisee?

September 2015By Comments

Illustration by Jonathan Bartlett

Two summers ago, with the South Texas sun beating down, a group of civic leaders gathered in front of the Whataburger on Main Street in Alice to unveil a bust of the late Joe Andrews Sr. The likeness of Andrews, wearing a cowboy hat and mounted on a limestone pedestal, was commissioned to mark the sixtieth anniversary of the oldest franchise of the iconic Texas burger chain. The ceremony wasn’t mere sentiment at work. For many years the Andrews family has been instrumental to Whataburger’s success. Andrews, a longtime friend of Whataburger founder Harmon Dobson’s, wasn’t simply the company’s first franchisee, he was its most successful, opening dozens of locations in Texas and helping the chain build its reputation. “The Andrews family has been very special to Whataburger through the years,” said Whataburger’s corporate chief, Preston Atkinson, during the ceremony. “We’re honored today to just say . . . how privileged we are to have been in a partnership with you for this long.”

These days, Whataburger doesn’t seem so grateful. Earlier this year, Andrews’s company, now run by his daughter, Kathy Andrews Reese, sued the restaurant chain, claiming that Whataburger had reneged on a 22-year-old agreement between the two companies. In Reese’s telling, the state’s most famous burger joint has become just another greedy corporate entity.

The lawsuit, filed in San Antonio in March, traces the roots of the dispute to the earliest days of the Whataburger chain, which Dobson founded in 1950 after stints in shipbuilding, oil drilling, and diamond trading. When he opened the first stand, on Ayers Street in Corpus Christi, he envisioned selling a burger big enough that it would take two hands to hold it. Dobson even cut a deal with a local bakery to make special-sized buns; the Rainbo bakery had to search the country for a company that could make pans big enough to bake them. The place did well, and soon Dobson added two more locations in Corpus and one in nearby Kingsville. In 1952 Andrews, who lived in Alice, brought his family to eat at the Kingsville branch and was so impressed that he contacted Dobson about buying a franchise. Dobson agreed, and the Alice store opened a year later.

The Alice franchise was a quick success, and over the decades Whataburger and the Andrews family’s company, Whataburger of Alice (WOA), grew in tandem. By 1990 Whataburger had 475 locations across the southern United States; WOA was running more than 30 of them, in Bexar, Bee, Jim Wells, and Webb counties. Andrews developed a close relationship with Dobson; he even coined the company’s popular slogan, “We build a bigger, better burger.”

Today, those oversized burgers and the promise of fresh ingredients generate annual sales of $1.8 billion, making Whataburger the thirty-third-largest restaurant chain in the country—and the second-largest founded and based in Texas, after Chili’s. “Whataburger has been highly successful in a very competitive market,” says Stephen Barth, a professor of law and leadership at the University of Houston’s Conrad N. Hilton College of Hotel and Restaurant Management. He attributes that success to Whataburger’s prudent approach to growth, training, and customer service. “They really caught on early to the adage that pioneers get slaughtered and settlers get the land,” he says. “They weren’t in a hurry to expand, and they rarely if ever expanded outside their comfort zone and their target market.”

In part because of its regional status—of the nearly 800 current Whataburger locations, more than 600 are in Texas—the chain inspires a combination of pride and loyalty among many Texans. Yet despite its success, Whataburger’s history has included some setbacks. Harmon Dobson died in a plane crash in 1967, and his widow, Grace (whose first date with Harmon was at Whataburger #3, in Corpus), ran things until the first outsider, Jim Peterson, took over in the early seventies. By the late eighties the company had begun to lose its way. Insiders still refer to this time in the company’s history as “the dead zone.” Profits fell as the company overreached by opening stores in saturated markets like Las Vegas and adding menu items, like popcorn shrimp salad, that customers didn’t want. Franchisees and the parent company squabbled over products and promotions, and the once familial corporate culture deteriorated into an us-versus-them mentality. Franchisees also sued over a mandatory rebate plan, which WOA claims amounted to forcing vendors to pay “illegal rebates, kickbacks, and bribes” to Whataburger and its executives. As one of the largest franchisees, WOA was hit particularly hard by this arrangement.

In the midst of this turmoil, Andrews, who decades earlier had been given exclusive rights to Bexar, Bee, Jim Wells, and Webb counties, decided in 1990 to sell his San Antonio franchises to an outside buyer, in order to better focus on the South Texas market. But perhaps because his dear friend Harmon Dobson was gone, his personal connection no longer seemed to mean as much as it once did. Whataburger, which saw San Antonio as a key growth market, filed suit to block the sale.

The case went to trial in 1993, but the two sides settled before the jury reached a verdict. Andrews surrendered exclusivity to the San Antonio market and agreed to sell the existing San Antonio stores back to Whataburger. In exchange, his company got renewed assurances of its exclusive rights to develop stores in Bee, Jim Wells, and Webb counties and locked in a royalty rate lower than that assigned to other franchisees. The agreement stipulated that if Andrews’s company identified a location in the three counties that it wanted to develop, Whataburger was obligated to approve the franchise. Other franchisees settled their disputes in a separate agreement as part of Whataburger’s efforts to repair its strained relations with them.

After the settlement, the leadership of both companies changed. The Dobsons’ son, Tom, became Whataburger’s chief executive in 1993. Joe Andrews Sr. died in 1999, and his son, Joe Jr., took over—and then died suddenly three years later while attending a Whataburger conference in New Orleans. His mother, Louise, and his sister, Kathy Reese, ran the business until Louise died, in 2005, leaving Reese in charge. Despite the leadership turmoil, the two companies continued operating under the 1993 agreement for more than twenty years, and tensions seemed to have eased. Under Reese’s leadership, WOA repeatedly won the chain’s annual “best franchise” award.

In 2012, though, Tom Dobson relinquished his CEO duties to Atkinson, a former contractor who started building Whataburger restaurants in 1986 and then joined the company in 1998. (Dobson remains as chairman.) “Whataburger’s affairs were more and more being turned over to the ‘professionals,’ all of whom wanted to participate in what by now had ceased to be a family business and had become simply a large corporate entity,” WOA claims in its lawsuit. One part of this strategy, the lawsuit contends, is to buy out franchisees with an eye toward taking the company public; gaining greater control over its franchise operations could provide greater value to future shareholders. Other publicly traded restaurant companies have made similar moves recently. In June Dallas-based Brinker International, which owns Chili’s and Maggiano’s Little Italy, unveiled a plan to buy franchises to boost earnings.

The University of Houston’s Barth says such changes aren’t unusual in a company that has grown to Whataburger’s size. Non-family executives, without direct ownership interest in a privately held company, sometimes try to profit from a company’s success by heading up a public offering. (Dobson family members also may be ready to cash out.) “There’s no question that Whataburger, if managed properly in the public market, could deliver a significant return,” he says. “It’s not surprising that people might want a bigger piece of that pie.”

For the Andrews family, this shift in corporate culture first became apparent two years ago, when it told the company headquarters, which had moved from Corpus to San Antonio in 2009, that it wanted to open a new store in Laredo. In the past, corporate simply approved such requests, as stipulated under the 1993 settlement. This time, however, it indicated that it wasn’t inclined to do so. According to the lawsuit, Reese met with Atkinson, who told her that despite the agreement, Whataburger didn’t believe it was obligated to approve new sites and that it could veto any sites that the franchisee selected. The company also said it didn’t intend for the 1993 settlement to give WOA exclusive rights or lower royalties. “In short, Whataburger made it very plain that its position is that Whataburger never intended WOA would have the benefits that the 1993 Agreement clearly states that it does,” the lawsuit says.

Whataburger proposed breaking the stalemate by approving the Laredo location only if Reese agreed to relinquish its lower royalty rate and give Whataburger veto power over all site selections, the lawsuit claims. Otherwise, it wouldn’t approve any new sites for WOA. The Andrews family refused and in March filed its suit, asking a judge to order Whataburger to abide by the 1993 agreement. Whataburger dismisses WOA’s allegations, saying the suit “contains serious misstatements and baseless speculation.” (Whataburger and WOA and their attorneys declined to be interviewed for this story.)

When most Whataburger customers walk into the restaurant, they have no idea if the place they are eating at is a franchise or a corporate-owned branch. And as long as they can still get their Green Chile Double Whataburgers or Honey Butter Chicken Biscuits, they probably don’t care. But the rift between the Andrews family and the burger chain they helped build represents a struggle between the past and the present, and between two families who have known each other for a long time. “It’s a little like a public divorce—neither side walks away looking good,” says Michelle Hartmann, a Dallas attorney who specializes in private-company litigation. “It hurts the brand ultimately.”

This is a terrible time to risk messing with the Whataburger brand. The Texas burger landscape is more competitive than ever, thanks to an influx of regional mini-chains such as Austin’s P. Terry’s, the Metroplex’s Twisted Root Burger Co., and Houston’s Becks Prime and smaller national chains such as Smashburger, Five Guys, and Shake Shack. Whataburger is bigger than all of those, and that may be the point. It isn’t a small business anymore, and to keep ahead of the competition, it may have to start acting its size. Its competition is McDonald’s and Wendy’s, not a boutique operation with three locations that offers grass-fed-bison burgers topped with arugula on a gluten-free bun.

But that’s a tough needle to thread for a company that has developed intense customer loyalty because of its down-home, noncorporate image. “The brand really is tied to both of these families,” Hartmann says. Neither Whataburger nor Whataburger of Alice would be what it is today without the other. If they can’t settle their differences, it’s not clear where they’ll be tomorrow.

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  • wessexmom

    Whataburger is NOT what it used to be. These days burgers at Sonic and Elevation Burger taste much better. Sad but true.

    • Jed

      try a different location. the one at south first and barton springs in austin is the same as always: painfully slow, too salty, and super yummy.

      • dave in texas

        That’s the location that always made me think that the corporate mentality had already taken over the company. Was it really necessary to build one right next door to Sandy’s Tastee-Freeze? I used to live just a couple of blocks from there and always ate at Sandy’s instead. In the interest of fairness and full disclosure, I’ve been a big Whataburger fan for decades, and now that I live in far South Austin, the Whataburger at Wm Cannon and I-35 is my go-to for burgers. I’m also kinda partial to their chicken strips.

        • Jed

          both restaurants seem to be doing fine – they have coexisted for decades, no? sandy’s always has a line. i go to whataburger late, after sandy’s closes.

          • dave in texas

            yeah, fair enough, but chains moving in next door to locals is kind of a pet peeve of mine. My hometown of Amarillo is one of the right-wingiest places in the country, but boy, are they loyal to local businesses. Several years after I moved to Austin, 7-11 moved into Amarillo and built a store within a block or two of every Toot’n’Totum (the local convenience chain, great name, no?). Within a couple of years, 7-11 was mostly gone, and I’m still pretty sure they don’t have more than a handful of stores there.

          • Jed

            wow. you just reminded me of utotem, which i hadn’t thought about in years.

    • jammerjim

      Comparing Elevation to Whataburger isn’t really fair though. It’s significantly more expensive, for starters.

  • Texas Take

    “Bigger” isn’t always “better.” A shame about the feud, but greed will always emerge as companies grow. You can mess some with Texas, but don’t mess with my Whataburger double meat cheeseburger with grilled jalapenos.

  • mark wyatt

    Whataburger like Bluebell is extremely over-rated by Texans that see TX as some magical place . In and Out burgers blow them away as do about 10 other chains from Cali. Fatburger’s come to mind . I never missed Whataburger once living in Ca. but did miss In&Out when I moved back here before they opened stores.

    • Jed

      i like fatburger, although that’s a pretty narrow comparison (how many locations do they have in total – 5? do they have any outside los angeles?). it’s not really the same kind of restaurant at all.

      and in and out is the prime example of what you are talking about, except on the part of californians. in and out burgers are unremarkable, bereft of flavor (the dominant flavor is iceberg lettuce – which famously does not have a flavor – or whatever condiment you asked for), and too small. their fries are simply abysmal. i mean, really bad. i would go to carls jr. before i would go to in and out.

      p. terry’s is what in and out thinks it is. and none of the above are relevant to a conversation about whataburger.

  • Czechster

    Make mind a DQ Belt Buster, the way Whataburger’s use to be. DQ’s fries are also better than those dried up cold fires at WB.

    • Jed

      i like dq, too, but they don’t seem to have many in the city.

      i stop in one anytime i hit the road.

  • John Johnson

    I am a food wholesaler. I sell component food products that major restaurant chains use to produce a menu product. I have been in this business for 35 yrs. Anyone watch what happened to El Chico’s, the iconic place in Texas to eat Mexican food in the 60’s? How about Ninfa’s in the early 70’s down off the Houston ship channel? Today, El Finex restaurants suck after the family sold out. All of them “Could have had it all” as the hit song professes. They decided to sell out to a money guy (not a food lover) who began cutting corners on cost of ingredients and changing the recipes in doing so. The “old favorite” no longer tasted the same. Watch for this Whataburger battle to produce the same results. I will add that their main competition in small Texas towns…Dairy Queens of Texas…is going great guns. Their 550+ locations are into slow moves and measured results.

  • James Peinado

    Whataburger’s ‘old double green chile cheeseburger started out amazing, but recently they’ve skipping out on the chile, and leaving more of the skin on they should. Blake’s Lotaburger the New Mexico chain is starting to move into El Paso, and while my loyalty been holding out for Whataburger, the Lotaburger Green Chile Double is legit. Pick it up Whataburger, if I defend you to people in New Mexico, you gotta back it up.