Burger Chain Planning 25 O.C. Outlets : Fast food: Fast-growing Rally’s, a drive-through operation with 7 L.A. County sites, will enter crowded market.

One of the nation’s fastest growing hamburger chains announced Monday that it plans to build 25 of its drive-through restaurants in Orange County in the next few years.

Rally’s Inc. said it is buying the territory of its Los Angeles franchisee for 413,000 shares of common stock. Based on Monday’s closing price of $17.75 a share, the value of the deal would be about $7.3 million.

Under corporate ownership, the company said, it hopes to develop the Los Angeles market faster. The franchisee, David Malcolm of San Diego, will be responsible for a large part of the Orange County expansion.

Rally’s, founded in 1985 in Louisville, Ky., now has seven restaurants in Los Angeles County. Those eateries--most with annual sales of $1 million--rank among the volume leaders of the 442 restaurants that the company operates in 25 states.

Malcolm said he hopes to open five Rally’s restaurants in Orange County by year’s end and hopes eventually to create about 300 jobs. He said his group is seeking sites and has not yet decided where it will build.

“I think it’s a great place to do business,” he said of Orange County.

Though the area is already crowded with hamburger stands, both Malcolm and Rally’s Chairman Burt Sugarman say they think that the county is ready for their company’s emphasis on speed and low cost.

“We can serve you in 35 seconds, and the food is absolutely fresh,” said Sugarman, a former Hollywood producer best known as creator of the late-night “Midnight Special” pop music show that aired in the mid-1970s.

The combination meal on which Rally’s built its reputation includes a hamburger, fries and a soft drink for about $2. Instead of a single drive-through line, Rally’s operates one on each side of the building, thus speeding service. It also has picnic tables outdoors but no inside seating, which cuts costs.

Malcolm said the Los Angeles-area Rally’s units have held their own against competitors. “We’ve competed next door to McDonald’s. We’ve competed close to In-N-Out,” he said.

One analyst said he thinks that Rally’s will have a hard time, though, competing with In-N-Out Burger, an 83-restaurant chain that also has a limited-item menu and emphasis on drive-through service.

“Taking on In-N-Out and in the Southern California economy, it’s tough,” said Robert Martyn, analyst for the Kemper Securities brokerage in St. Louis.

Rally’s may also be hampered, Martyn said, by having too few stores in the area to be able to advertise effectively against the larger, more established chains. The analyst noted, though, that Rally’s has proved to be a winner is other parts of the country.

Kim Kelly, spokeswoman for In-N-Out at its Baldwin Park headquarters, said her company thinks it has a quality edge on potential competitors such as Rally’s. “Everything is cooked to order,” she said, including french fries.