say hello to fast casual 2.0

2/23/2016 Say Hello to Fast Casual 2.0

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Say Hello to Fast Casual 2.0 [1]

Fast casual changed the restaurant industry conversation. But it’s the next wave of limited-

service restaurants that might change how we dine out entirely.

I don’t make it to the movies much anymore. Like a lot of people, my wife and I find the price

hard to justify; $25 for a night of entertainment where our only dining decision is which

flavored spice to rain over burnt popcorn is far too steep in the age of Netflix, Hulu, and

Redbox.

But I’ve got a bigger problem with movies these days.

Too many sequels. Too many reboots. Too many superheroes.

Hollywood, it seems, just doesn’t have many good ideas left. With theater traffic heading

south and competition for consumers’ eyeballs more intense than ever, the pressure is on for

studios to bankroll surefire hits—another comic book rip-off, say, or another ’80s-era

franchise reboot. Instead of something fresh, something original, the box office is filled with

imitators.

So I choose to stay home.

Call me crazy, but the limited-service restaurant industry is starting to feel a bit like

Hollywood. Ever since Chipotle became a blockbuster with its elevated quality, chic

ambiance, and invitation to customers to create their upscale meal exactly as they like it—

and ever since the competition for customers’ foodservice dollars intensified in a post-

recession foodie world—there’s been a flood of imitators hoping to capture some of its magic.

And I’m not talking just in the burrito space; in the last decade, we’ve seen the “Chipotle of

Italian,” the “Chipotle of sushi,” the “Chipotle of pizza,” and on and on. Everybody wants to be

Chipotle.

Is that a bad thing? Absolutely not. From its branding to its sourcing to its growth strategy,

Chipotle offers countless best practices on how to run a successful restaurant business. And

trying to be like Chipotle isn’t necessarily a fool’s errand; just like in Hollywood, imitations can

still make boatloads of money (earlier this year, Jurassic World, the fourth film in a 22-year-

old franchise, became the fourth-highest-grossing film of all time).

But imitators can only go so far. Very few people would think Jurassic World is better than

Jurassic Park; there’s something about the original that will always retain a certain magic,

animatronics and all. Those brands hoping to be the next Chipotle have to remember that the

secret to Chipotle’s success was always that it was the first one doing what it did. Nothing will



ever change that.

OK, you say. We get it. What’s the point of all this?

TRAILBLAZINGFAST CASUAL 2.0

Some of the leaders driving the industry's next great wave.

Num Pang [17]Mendocino Farms [18]Tender Greens [19]Marination [20]Hopdoddy Burger Bar [21]Honor Society [22]

My point is this: In a world of imitations, original ideas shine all the brighter. And after adecade of measuring success against the Chipotle model, we’ve arrived at the cusp of thenext great wave of innovation in limited-service restaurants. A bevy of foodserviceentrepreneurs are refining Chipotle’s model and rolling out premium concepts that are chef-driven, designed around a high-quality experience and long-term relationships with theirvendors, employees, and communities.

It’s a new era for fast casual, a step above the phenomenal things Chipotle hasaccomplished.

Say hello to Fast Casual 2.0.

What is Fast Casual 2.0?

Just like the difference between quick service and fast casual, the difference between fastcasual and Fast Casual 2.0 isn’t so black and white. The fast-casual industry pioneered adining experience where higher-quality ingredients, enhanced hospitality, and cozier diningrooms could mesh with lower prices and counter service, and Fast Casual 2.0 retains thosetouch points.

But Fast Casual 2.0 brands take those touch points to a whole other level. While theysometimes offer the same kind of menu customization Chipotle made famous, they tend to bemore chef-driven, with signature items crafted by a team of culinary professionals. Thesebrands often focus on an overall experience rather than just the value of what they offer; thatgenerally includes an enhanced beverage program with beer and wine. Their ingredients arehigh quality, often local, usually healthy or without additives. And their growth strategies aretempered, with new-unit expansion and profits becoming secondary ambitions to other long-term goals like community development and an investment in suppliers and vendors.

At QSR, we’ve watched as these brands have popped up in the last few years—a “fine-fast”restaurant here, a “gastro-fast” shop there. But as we head into 2016, it’s become clear to usthat these upscale fast-casual concepts are no longer one-off novelties confined to urbanfoodie meccas. As the economy improves and American consumers become increasinglyinterested in convenient, quality food, the opportunities for upscale fast-casual brands to grow—both in their home markets and out—are greater than ever.



So we’re calling it now: In the next 10–20 years, Fast Casual 2.0 will change the restaurantindustry as much as the original fast-casual category did in the last decade—if not more.

To flesh out the Fast Casual 2.0 idea a bit further, I reached out to Mike Ganino, a California-based consultant who specializes in small and midscale brands and who spent time runningoperations at upscale limited-service concepts like Potbelly, Protein Bar, Wow Bao, andHomeMade Pizza Co. He agrees that the age of Chipotle imitators seems to be playing itselfout.

“One of the things we’re going to see less of is ‘Chipotle of X, Y, and Z.’ I feel like that’s stillreally closely tied to [fast casual] 1.0. It’s 1.5,” Ganino says. The new fast-casual wave, hesays, will focus less on an assembly-line experience that encourages mostly lunch businessand more on a holistic, universal dining occasion. “It’s still very much order at a counter, butyou sit down, they bring [your food] to you—maybe they have a couple local IPAs orsomething on draft or in bottles. And it’s still limited; it’s still not a full menu, you don’t havewaiters who are waiting on you. … I think the ambiance feels a little bit more removed fromfast food, whereas I think Chipotle and that kind of group of ‘Chipotle of X, Y, and Z’ is stillvery closely tied to fast food.”

Herein lies an important characteristic of Fast Casual 2.0, one that several brands I spokewith as part of this story (more on them in a bit) mentioned as distinguishing factors to whatthey wanted to accomplish when they opened their doors. Whereas the original fast-casualindustry disrupted traditional quick-service dining, Fast Casual 2.0 is more prepared to disrupttraditional casual dining. When you consider the fact that the only real line between fastcasual and casual dining is a wait staff, you come to understand the sliding scale upon whichmany fast-casual operators are starting to move their brands.

Just ask Mario Del Pero, cofounder and CEO of Los Angeles–based sandwich brandMendocino Farms. Del Pero and his wife, Ellen Chen, first operated a fast-casual teriyakibrand that they opened in the late ’90s, before fast casual was even the term to define whatthey were doing. They sold the brand once it had grown to three locations, and in 2003—when they realized there weren’t enough alternatives to casual-dining brands—they started todevelop the idea for Mendocino Farms.

“Since we were such early adopters of what would become fast casual, it gave us a lot of timeto really study what worked, what didn’t work,” Del Pero says. “At that time, the onlyinspiration that people were taking from casual dining was basically the better quality of theingredients. The format was very identical to fast food. … So when we were creating thisconcept, we had a little more context because we’d been in it for five years, and we weresaying, ‘Can we pull more things from upscale casual?’”

The result? A Fast Casual 2.0 brand that launched in 2005, has grown to 12 locations,averages about $3.4 million per unit, and just welcomed upscale grocer Whole Foods as aminority stakeholder.

By our count, Mendocino Farms is just one of dozens of Fast Casual 2.0 brands across thecountry that have spent the last five to 10 years establishing their systems and infrastructureand refining their menu and culture to the point that the concept can be replicated.

Most of these brands have fewer than 50 units; several of them have yet to break out of theiroriginal market. But, just like Mendocino Farms, all of them are finally ready for the nationalspotlight.



Fine to fast

Let’s start our exploration of Fast Casual 2.0 in (where else?) New York City. Our nation’sculinary capital, New York has given rise to several innovative Fast Casual 2.0 concepts,from Luke’s Lobster and Dig Inn to The Little Beet, Fuku, and ’wichcraft.

Perhaps most importantly, New York is home to Danny Meyer and his Union SquareHospitality Group (ushg), parent company to Shake Shack. While Shake Shack is very mucha tried-and-true burgers-and-fries brand, there is an “otherness” to it that countless othersstrive to replicate, much like Chipotle before it. Its hospitality, for example; by investing in itsemployees, Shake Shack has established a hospitality service more in line with full-servicebrands.

Meyer famously dodges attaching the “fast casual” classification to Shake Shack, optinginstead for “fine casual.” If you thought that wasn’t intentional, think again. By ditching the“fast casual” moniker, Meyer is able to separate the brand from other better-burger playersand any Shake Shack imitators, creating a closer association with the fine-dining expertiseUSHG is known for.




A closer association to fine dining is also what Ratha Chaupoly and Ben Daitz are hoping toaccomplish with New York’s Num Pang. The college buddies first opened the Cambodiansandwich joint in 2009 as a spinoff of Kampuchea, a fine-dining restaurant Chaupoly openedin 2006. That restaurant—one of the first Cambodian-focused concepts in New York, inspiredby Chaupoly’s heritage—had num pangs (loosely translates to “sandwich”) on the menu thatbecame so popular the business partners figured they could operate a separate conceptaround them.

They were right. The first location—squeezed into a 250-square-foot space near New York’sUnion Square—was such a hit that it sold out every day for its first three months and the teamhad to prep food at home in order to keep up with demand. Num Pang has since grown toeight locations in the Big Apple and was recently ranked by Zagat as customers’ favorite fastcasual in the city. While the first location only had a handful of sandwich selections on themenu, Num Pang now features several regular and seasonal sandwiches—like the PulledDuroc Pork, Coconut Tiger Shrimp, and Grilled Skirt Steak sandwiches—soups, salads, andnoodle and rice bowls, as well as premium beverages and, in some locations, beer and wine.The restaurants are vibrant, with graffiti splashed across the walls and hip-hop blaring overthe speakers.

Chaupoly says the goal with Num Pang’s menu was always to replicate his and Daitz’s



experience in fine dining. “Fine dining is such an art form, from plating, making, designing thefood to building your service,” he says. “This is the way I think about it: I’m going to build yousomething beautiful. So how do you take this and get it to the public’s eye in order for them totaste and feel and experience it? You take that concept and you put it in [a counter-serviceformat], and you don’t really think anything different.”

He adds that the ingredients and flavors are on par with what would be served in a fine-diningformat, pointing to the brisket as an example of this. Taking eight hours to cook and chill, thebrisket is something Chaupoly says he could serve as a main course in a full-servicerestaurant. At Num Pang, it’s served in a sandwich for around $9, paired with bold and freshflavors that are packed into every bite.

Now Chaupoly and Daitz hope to deliver the Num Pang experience beyond the New Yorkmarket. Their team is preparing to scale the concept, and they envision national growth,starting with the Northeast. As for growth methods, they hold to the same strategy as manyother Fast Casual 2.0 brands: no franchising.

“I think the old franchise model works well when you’re delivering a bread, sliced meat, andsliced cheese experience,” Daitz says. “When you have a more culinarily advanced modelthat you’re trying to roll out, there are obvious pitfalls in keeping the brand consistent as yougo out of market.”

This is a commonly held problem among Fast Casual 2.0 brands. Because so many of themare designed around a chef-driven menu, expansion becomes a little trickier than withtraditional limited-service restaurants. Daitz hails Panera Bread and Chipotle as “incrediblebrands” but adds that what Num Pang is trying to accomplish is more complex to execute.

Overcoming that challenge, Chaupoly says, is all about the people Num Pang brings into thefold. “How can I give a great experience? How can I give great, thought-out food, withtechniques you can find in a sit-down-service restaurant, and provide that with quick service?”he says. “It becomes really about the people you have. If you can build a model that you cantrain and cultivate and build a good culture within your business model, then I think you havesomething.”

Ganino especially champions the people piece to the Fast Casual 2.0 wave. While severalChipotle imitators studied that brand’s menu systems, he says, they missed the fact that oneof Chipotle’s greatest strengths is its brand culture and the way it develops employees.Brands thrive when employees are invested in the company’s success.

“Most companies have one of two issues: They haven’t gotten really clear about what theywant it to feel like to work there, or they have gotten clear but … nobody is held accountablefor living those rules,” he says. “If you’re hiring people and paying the least amount you can,and giving them the least amount of training you can give them, and you’re not really doingsomething bigger than, ‘We sell food and this is a job for you,’ then the relationship with theconsumer is not going to be what it could be.”

In scaling premium concepts, he adds, the trick to having several locations without the brandfeeling like a commodity—the dreaded “chain” reputation—is to hire and develop people whohelp make each location feel independent.

High tides



Now to Los Angeles, the yin to New York’s culinary yang. In Southern California, local

ingredients and healthy eating have become foundations of the foodservice scene, and that’s

especially true of its Fast Casual 2.0 brands. And, like in New York, it’s an emphasis on

culinary excellence that is fueling this premium limited-service experience.

Let’s go back to Mendocino Farms, where Del Pero and Chen are quietly building a

burgeoning restaurant empire whose tagline is “Eat happy,” where several of Fast Casual

2.0’s signature traits are perfectly encapsulated.

First, there’s the menu, a “sandwich market” rife with locally sourced goods; there’s a

Peruvian Steak Sandwich, a Kurobuta Pork Belly Banh Mi, a Vegan Dosa. But Mendo, as it’s

affectionately known to staff and customers alike, is also busy creating a restaurant

experience that Del Pero says strives to make the restaurants a gathering place for their

communities. It trains its employees to take customers’ orders as they’re waiting in line and

then run the food out once it’s ready to go. Each Mendo is designed by the same in-house

architect but different interior designers, giving the stores a sense of unity as well as

independent character. Fine-dining chefs regularly visit the brand for days at a time, working

with its culinary team—made up of trained chefs, many of whom carry full-service experience

—to develop new menu items. There are communal tables, cornhole courts, foosball, beer

and wine.



Num Pang [17]

Mendocino Farms [18]

Tender Greens [19]

Marination [20]

Hopdoddy Burger Bar [21]

Honor Society [22]

“We’re not trying to build 5,000-square-foot sandwich shops, but we’re also not building

2,500-square-foot sandwich shops,” Del Pero says. “These are 3,000-square-foot sandwich

shops that typically do $1,500–$1,700 a foot. ... We’re doing as much as most casual-dining

spaces and far more per square foot than Chili’s or any of those brands could ever hope for.”

Del Pero cites the convergence of three consumer trends from the last decade and a half for

Fast Casual 2.0’s conception. First, he says, was the rise in popularity of grocery brands like

Whole Foods, which educated Americans on local ingredients and wholesome eating.

Second was the popularity of food TV, which further educated customers and got them

excited about ingredients and recipes they’d never even heard of before.

The third trend, he says, was the food-truck boom. While the trend has, in many cities, come

and gone, Del Pero says the timing of food trucks’ popularity, especially in Los Angeles—

ground zero for the truck trend and home to the movement’s godfather, Roy Choi—is not to

be underappreciated. Thriving at the peak of the recession, food trucks presented a creative

outlet to educated people who were suddenly unemployed. “You had a lot of these

specialized foods that were done by people who were unbelievably thoughtful and great

students of trying to understand how to be successful,” he says. At the height of the food-



truck trend, he adds, several trucks parked outside a Mendocino Farms location during peakhours—and he welcomed it. “All ships rise with high tides. It’s been one of the greatestmovements.”

Like with Num Pang, Mendocino Farms is preparing for growth, though Del Pero still isn’tcertain whether that growth will be regional or national. The trick, he says, is growing theinfrastructure—the suppliers, the partners, the hospitality-training program—along with thebrand. “One of the three things we’re fighting in ‘fine fast’ is, the minute you start trying toscale, you start watering down the food, you start cheapening the dining rooms, and yourhospitality goes out the window,” Del Pero says. “So we’re fighting those three things.”

The recent investment from Whole Foods shouldn’t hurt. The grocer, which Del Pero citesrepeatedly as an inspiration to Mendo (our interview was conducted before news of theinvestment broke), became a minority stakeholder and will help the sandwich brand expandto San Francisco and San Diego. It also plans to open Mendo within some of its Whole Foodslocations.

Similar to so many other Fast Casual 2.0 brands, franchising isn’t in the cards, and Del Perosuggests the elevated level of service and culinary expertise in Fast Casual 2.0 isn’tsomething that can be easily packaged in a franchise model. “All of these places are doingpretty chef-driven menus, and any time you have that level of complexity, you better have[franchisees with] 50-plus units under their belt,” he says. “And if you’re thinking offranchising, it better be in area development deals with someone who already owns casual-dining chains—not fast-food places.”

Mendo’s friend and neighbor, Tender Greens, also isn’t franchising, and has its owninvestment partner on board to help with expansion: Meyer. The USHG mogul invested in theLos Angeles–based concept this summer, becoming a board member and minoritystakeholder—the first such investment he’s made with USHG.

Tender Greens was founded in 2006 and has grown to 22 locations. While the core of theTender Greens menu is salad, it also features soups, sandwiches, and plates with signatureproteins like albacore tuna, steak, and chicken. Most of its produce is sourced fromScarborough Farms in Oxnard, California, which invested in the brand early on. Much of therest of its menu is also locally sourced.

Tender Greens’ slogan is “slow food done fast,” and that stems from the chef experienceeach of the three founders—Erik Oberholtzer, Matt Lyman, and David Dressler—brought tothe table when they decided they wanted to create a premium restaurant that was moreaffordable.

“We were just ‘quick casual’ by service model in that we wanted to pull the waiters out of theequation, valet parking out of the equation, so that it wasn’t so expensive, and it was also fastand efficient,” Oberholtzer says. “So we borrowed the efficiencies of the fast-food world, butwove the fine-dining and luxury space into every bit of Tender Greens.” He adds that thecofounders were “reluctant to absorb” the “fast casual” mantle, as it refers to a box created byChipotle and Panera Bread that their team didn’t want to be lumped into.

With so much of its menu locally sourced—and in California, no less, the largest agriculturestate in the nation—Tender Greens isn’t in a hurry to open new restaurants. Oberholtzer saysUSHG’s investment will help the Fast Casual 2.0 brand expand to cities like Chicago, NewYork, and Austin, Texas (in talking about expansion, Oberholtzer also brings up Whole



Foods, noting that Tender Greens’ customer is the same one who visits the grocer). Theteam wants to scale its sourcing strategies along with the brand, and Oberholtzer says thatwill be easier with new hydroponics and aquaponics systems, through which Tender Greenscan grow food under controlled conditions and as close to the restaurant as possible.

Oberholtzer sees the Fast Casual 2.0 movement thriving on the same idea he and hiscofounders had 10 years ago: So many chefs around the country, he says, want to maintaintheir high cooking and sourcing standards, but in a package that is more accessible to thepublic.

“I think what you’ll see is there will be some great one-off local brands that emerge in marketsacross the country,” he says. “Then there will be other regional players that are able to scaleup and enter suburban markets or secondary markets over time. And then there will benational or international brands that make it; they’ll have the bandwidth and the organizationalstructure and the systems and the brand identity to expand further. You’ll see success at alllevels.”

Finer touches

Indeed, Fast Casual 2.0 comes in all shapes and sizes and in all manner of culinary stylesand branding personalities.

Just look at Seattle, where two women who successfully accomplished their dream ofopening a food truck have suddenly found themselves operators of two—soon to be three—mega-successful counter-service restaurants, each with its own unique flair. Marination,founded by Roz Edison and Kamala Saxton in 2009, first earned fans in Seattle as a roamingfood truck slinging Hawaiian-Korean fusion fare like Spicy Pork Tacos, SPAM Sliders, andKimchi Quesadillas. It then grew to a 600-square-foot brick-and-mortar space that Edisonsays was essentially a replica of the truck but with a “kegerator,” and then to a location on thePuget Sound that overlooks downtown Seattle.

“We try to distinguish ourselves from other fast casuals mostly by making everything in-housefrom scratch, even at mass volume,” Edison says. “‘Everyday Aloha’ is our model, and welove that. All of our order takers are trained to do everything they can possibly do toremember people’s names or faces or at least something about them. Even if they don’tremember any of those things but remember that they’ve seen this person before and say,‘Welcome back, good to see you again’—that’s not very typical in a fast casual like Chipotle.”




Marination’s growth plans, though, are tempered. After the third brick-and-mortar location



opens, Edison and Saxton have no plans to continue building the brand. While Edison says“never say never,” she adds that she and Saxton are content with their small Fast Casual 2.0operation, even as they receive invitations to expand out into the broader Pacific Northwestregion. Growing beyond Seattle means giving up control and not being on the frontlines,Edison says, and that’s not something she and Saxton are interested in.

“You can’t separate Marination from who I am and where I go,” she says. “And for me, thatmeans that it is a huge responsibility to make sure Marination continues to deliver a positiveexperience for every one of the people I run into.”

Look, too, at Austin, where a group of business partners went all in on the better-burgercategory, but in an effort to do something different, elected to make everything itself, from themeat to the buns to several components of its full bar. At Hopdoddy Burger Bar, guests orderat the counter and wait for their food to be run out, and while they’re waiting, can order a drinkat the bar and soak in all of the visual cues that denote a high-quality experience.

“You see our meat-grinding room,” says CEO Dan Mesches. “You smell our bakery and seethe bakers working. You see the craft spirits at the bar. You see the local beers on tap.”

Hopdoddy has grown to 10 locations in four states and is looking at additional growthopportunities across the country. Mesches says the company’s leaders aren’t interested in“growth for growth’s sake,” and plan to grow at the right pace as the right opportunitiespresent themselves. But more important than how many locations they have, Mesches says,is the culture they build into Hopdoddy as it grows. “We’re looking for people who have thespirit, who want to be part of the change, who want to grow with us and be proud of what wedo,” he says. “We would love it if the people who work with us, if we’re the last restaurant jobthey ever have, that they continue in our company up through the ranks, or, if it’s a segue intheir life, they can go on to what their chosen area is.”

You can even look at Denver, cradle of the original fast-casual category and birthplace toChipotle itself, where a team of restaurant veterans—a fine-dining chef and Yum! Brandsfranchisee among them—just opened Honor Society, which its owners hope can be adestination for lunch, happy hour, or dinner. Rob Alvarado, CEO of Yum franchisee Palo AltoInc./Alvarado Concepts LLC and one of the Honor Society partners, says he and his teamwanted to add some “finer touches” to the traditional fast-casual model.

“It’s little things such as runners who actually take your food out to you, more linens andactual china plating and real silverware, things like that,” he says. “We do things such asmaking most of our food in-house. … We offer craft beers on tap, wines on tap, but we alsohave what we call our clean cocktail program, these healthier takes on cocktails, on tap. Soit’s really a step above what you would find in a traditional fast-casual restaurant and morereminiscent of a true full-service restaurant.”

As Honor Society is just a few months old, the owners don’t have an idea for just what theymight accomplish with the restaurant, Alvarado says, but he adds that they built its systems“with growth in mind.” Like other Fast Casual 2.0 operators, the Honor Society teamunderstands that an elevated fast-casual experience has the potential to kick open plenty ofdoors with the restaurant-crazed public.

“Just how fast casual came in and played its role there, I think this is the next level, whererestaurants can play for even a different demographic who maybe before were only visitingcasual restaurants,” he says. “I think this will appeal to folks who want that same quality food



but want to access it more frequently at a more affordable price point.”

Imitation may be the sincerest form of flattery, but it’s also the easiest blueprint for making

money. Just ask Hollywood.

Here’s the thing, though: The easy way isn’t always the most fulfilling. In time, customers

want something new, something fresh, something original, or else they’ll just choose to stay

at home.

We believe a new wave of restaurants is up to the challenge. Call it whatever you want. Call it

fine casual. Call it fine fast. We’re going to call it Fast Casual 2.0. And we’re excited to share

its story as it revolutionizes the limited-service industry.

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say hello to fast casual 2.0

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