Fast Casual is Booming

Barb Axelson

Hurry Up & Relax

Fast Casual is Booming

In today’s changing marketplace, the fast-casual segment is not an oxymoron. People have come to expect quick, nutritious and quality-rich solutions to grabbing a bite. And only a small bite in the pocketbook is tolerated.

America is growing up and growing older. Fast food is losing its appeal, and all too often folks don’t have the time to sit down in a casual operation, much less a white-tablecloth restaurant. The result is full steam ahead for the fast-casual segment, which combines the speed of quick service with the menu and decor of casual concepts.

Ron Paul, president of Chicago-based marketing research and management consulting firm Technomic, describes fast casual as "more expensive and fresher than fast food; casual dining that is not full-service."

Location is key, he explains. Often, fast-casual restaurants are not located downtown because no one is around in the evening. Mall locations are good, especially in the suburbs. Most need the dinner daypart. Units have to justify prices. Overall, the trend is doing well. It’s taking business, stealing share.

What follows are profiles on four companies poised to take a cut of the fast-casual pie. You’ll find service with a smile at these places, because satisfied customers, profitability and expansion have come their way.

Sitting pretty in the city

Located in a skyscraper and feeding 1,300 to 1,400 lunch-hour visitors each weekday is Sopraffina Marketcaffe, the brainchild of Dan and Lin Rosenthal of Chicago’s The Rosenthal Group, owners of the successful full-service Trattoria No. 10.

"We emphasize quality and lack of commerciality," says Lin Rosenthal, vice president of development. "We hate to be known as ‘fast food’—we’re an artistic, European-style self-serve cafe. We traveled to Italy to research decor emphasizing wood, complemented by fresh flowers and classical music.

"Sopraffina was born upstairs of Trattoria No. 10, with a ‘lunch in the [Chicago] Loop’ concept. We experimented with gourmet pizza and salad." It was extremely popular, but long lines made it crowded.

"We make all our own food—pizza, sauces and soup." says Rosenthal. "Salads are tossed in front of the customer. We spent six months with a bakery developing varieties of Italian flatbread. For the time it would take to get a Big Mac, our customers get really good food in an attractive setting."

A second, larger Sopraffina in the nearby AT&T/ USG Building features 126 seats, plus serving stations and four cashiers to improve traffic patterns. With 6,000 professionals upstairs, customers control their own time.

"All managers," says Rosenthal, "are hired out of culinary school or are sous chefs, tired of working late nights, who also want to have their own restaurant one day. We’re very systematized, so they learn the restaurant business from us and we, in turn, keep the integrity of the food going."

The newest location, added to three units downtown, is in north-suburban Deerfield. Hours are 11 a.m. to 9 or 10 p.m., seven days, for lunch and dinner; downtown it’s 6 a.m. to 4 p.m., weekdays only. Catering is provided from the Deerfield location.

"Suburbs are crying for this type of restaurant," says Rosenthal. "We’re in an upscale new shopping center, with outdoor eating and a fountain. We feature art by a local artist. We’re near the train so our help can commute and other commuters can come in and pick up dinner-to-go. There’s more family clientele."

Sopraffina serves wine and beer, provides lunch boxes, and creates delicacies like Asparagus Ravioli and Eggplant Parmesan.

Downtown units don’t advertise; it’s word-of-mouth. In Deerfield, a coupon offer of 10, then 20, 30, and 40 percent discounts for succeeding visits has worked well.

Average checks in Deerfield are $7-8 (lunch), $11-12 (dinner). Downtown, it’s $6-7. Average annual sales are $2 million at each of the four units. The Rosenthals and private investors own the separate companies.

"We’re thinking of smaller units," says Rosenthal. "Space is getting expensive to lease. Maybe we won’t do pastas, just pizzas and salads or soups and salads— a Presto! version."

Bread lines

Panera Bread Company (St. Louis, Mo.), a publicly-owned 262-unit company, now in 28 states from the East Coast to Denver, has a bright future, according to president/c.e.o. Ron Shaich, co-founder, in 1981, of Au Bon Pain.

The popular bakery-cafes have grown steadily since 19 units were purchased from St. Louis Bread Company in 1993, reporting $351 million in sales last year. Au Bon Pain was sold off in 1999.

Shaich calls "quick" casual an important consumer trend. "From 1950 to 1990," he says, "prevailing wisdom was commodification. You had to be number one or two in your industry or get out. By 1990, everything consolidated. But customers were saying, ‘I’m sick of the mass market; I can get this anywhere.’ A rejection of commodified marketplaces was occurring. People needed to feel special."

In bread, the choices were frozen dough from supermarkets or Wonder Bread. A reaction was artisan breads emerging on the coasts.

Fast-casual is fundamentally different than quick service. It’s real food served in an environment that makes customers feel good.

"Panera units, mostly in leased space, range from 3,500 to 4,500 square feet, seating 100 to 125; each is a little unique," says Shaich. "There is no better platform than bread to compete in quick casual. It gives us credibility at breakfast, lunch and dinner, and in the take-home baked goods business.

"We publicly committed to open 80 units last year and 84 this year. Our goal was to become a nationally dominant brand. We needed to be aware of what was required to get there and what could go wrong.

"The concept must remain special to the consumer. Execution must be spectacular (our focus is people and quality operation). The right long-term partnerships in markets, real estate and franchisees must combine with focus and discipline. Finally, a culture of change requires adherence to the vision of where you’re going."

Shaich envisions a ratio of 25 percent company ownership to 75 percent franchise business. Some analysts say that there could be a future for 1,000 Panera bakery-cafes.

Panera (Latin for "time for bread") uses its bread in signature sandwiches like Tuscan Chicken (char-grilled chicken breast, pesto mayonnaise, tomato, red onion, mixed field greens, and balsamic vinaigrette on rosemary and onion Focaccia), and in hearty soups served in sourdough bread bowls. Premium coffees are featured.

For its efforts, Panera has grabbed the number three spot on Restaurant Hospitality’s list of America’s 50 Fastest Growing Chains with annual sales of $351 million and average unit sales of $1.6 million.

A universal food

This is not your father’s Spaghetti-O’s. In the land of chic noodles, Noodles & Co. (Boulder, Colo.) rolls merrily along.

"Noodles and pasta are a staple worldwide, a universal food," explains Aaron Kennedy, president and founder of the seven-year-old noodles cuisine business that today has 21 units where customers can request special ingredients or enjoy one of 10 menued noodle dishes served in heavy white china bowls.

Consider Japanese Pan Noodles, created in a 450-degree saute pan with generous portions of fresh udon noodles, broccoli crowns, julienne carrots, bamboo shoots and shiitake mushrooms tossed with Indonesian sweet soy sauce, pickled ginger and garlic. Does that sound like "fast food" fare? Noodle choices were narrowed down and refined over seven years, with the input of a company executive chef.

Noodles slip and slide among unique ingredients to tempt adults and children. From $3.50 to $5.95 a serving, everything from macaroni and cheese to Sesame Seared Lo Mein contributes to what Kennedy calls customer migration. "We’re packed with lines to the door. Our appeal is to well-educated, two-income households. We look for density in communities, people with a broader interest in different culinary flavors.

"We see that people eat out maybe seven times a week—four lunches, three dinners. They have no time. And kids love noodles. Neither parent nor child has to make a sacrifice. It’s efficient for customers and for business to serve in bowls. You order, pay, and within five minutes, you’re served.

"We hire experienced line cooks who understand how to saute. We can also train talent. Our philosophy is to do a few things and do them very well. If a community doesn’t know what a wonderful addition we’d be, it could be hard to break in. We do pre-opening parties, inviting community leaders."

Creatively, the sky’s the limit. Kennedy says units include turn-of-the-century buildings and even a unique two-story triangular building. "We range from 2,600 to 2,700 square feet, although we have gone 1,250 and 3,500 square feet as well. We are complimented to be invited into new shopping centers as a 2,500-square-feet anchor tenant, bringing in 500 to 800 people daily."

The future is to continue to innovate, says Kennedy. "I don’t allow myself to think about other concepts." Regarding possible international expansion, Kennedy muses that although he’s focused on the U.S. now, the concept would be well received in many countries.

"We have no direct competition. There are Asian and Italian concepts and some mom-and-pops. P.F. Chang’s is coming out with Pei Wei, a strong operation. Competition is helpful to the industry; it’s involving and satisfying to customers.

"We have to out-operate competitors, the same with staff. We lose very few people; we have a lot of applicants. We also serve beer and wine, which differentiates us from fast food. We’re testing a longer list of wines. We offer excellent Chardonnay at $3.25 a glass."

The average check per person is $6.75. Dinner visitors account for 55 percent of the clientele; lunch, 45 percent, driven by capacity and time windows; 30 percent is carry-out. Annual sales are a million dollars per location. Noodles & Co. is now involved in a fifth round of private financing.

"It was a huge challenge to forge this new path. There was nothing to look at and say, ‘Over there they’re doing that.’ We had to get the formula right. The first year, we had two test restaurants; it was tough."

Getting fresh

Baja Fresh Mexican Grill claims it has "no fish tanks, no Terrazzo tile or howling coyotes and no freezers, no microwaves, no can openers, no lard and no MSG—basically no compromises." According to president/c.e.o. Greg Dollarhyde, "We’ve actually trademarked the ‘no’s.’"

Baja Fresh began in 1990 in Newbury Park, Calif., when Jim and Linda Magglos began business by taking a third mortgage on their home. The chain elicited customer loyalty based on delicious flavors and generous portions of fresh food.

Franchising began In 1995, and in 1998, Dollarhyde met Magglos, recapitalizing the parent company, acquiring venture capital and buying shares from outside holders to take control.

In 1999, units were built with new debt and equity capital; more than $50 million was raised since the fall of 1998.

Today there are 105 units with plans to increase to 160 in 11 states this year. Locations are mostly Western, although units exist in Illinois, Texas, Ohio, Maryland and Virginia. Florida and Georgia are on the agenda.

"We lease our property," Dollarhyde says, "We like highly visual end-cap and occasionally inline units. They feature 1,800 to 3,000 square feet with a European/Mexico City look; it’s clean and high energy. Line managers and very fast cooks prepare food to order in exhibition kitchens that complement the concept. It’s a cut above fast food, but with a casual theme. The customer comes to a counter to pick up food when his or her number comes up."

Signature items include Grilled Vegetarian, a mix of grilled peppers, onion and roast chilies combined with black beans, cheese, lettuce, sour cream and fresh pico de gallo.

Dollarhyde proclaims, "We have no ‘doggies in the window’ (posters touting discounts). We don’t advertise; we do a little guerrilla marketing. The amount, flavor and quality of food on the plate brings customers back!"

Baha’s direct competition is "anyone who serves high-quality food in a convenient setting for people in a hurry," says Dollarhyde.

"Lunch versus dinner depends on the trading area. Our average check is the high six-dollar range," he says. "Annual system-wide sales this year will be around $150 million. Our food costs run higher than most fast food."

The company’s vision is to become the leading national restaurant brand known as the defining standard for highest quality and convenience in fresh Mexican food.

"It’s been a challenge to launch a nationwide expansion, retaining the original culture at the restaurant level. Culture is like peanut butter, the more you spread it, the thinner it gets! We’re unique and take pride in our business."