Article

Fast casuals target urban markets

Higher household incomes and increased foot trafffic make downtowns a viable choice.

March 23, 2009

Au Bon Pain has built its business model around the urban appetite, with more than half of its locations in business and industry districts.

"The heart of our business is urban locations," said Ed Frechette, vice president of marketing for Boston-based Au Bon Pain. "Our strength has been in these high congestion urban areas where people won't go more than two blocks for food."

Metropolitan restaurants offer some distinct advantages that their suburban counterparts don't.

"In general, metro areas have higher household incomes than rural areas. Also, urban locations tend to have higher profitability," said Hudson Riehle, senior vice president of research for the National Restaurant Association. "That's not to say that an operator can't be successful in both venues, but they are distinct markets and the income statements of both of those operations will vary substantially due to a host of factors, such as labor and incoming food and beverage costs."

Operating costs can vary greatly in urban markets, and often location can dictate success or failure.

Wolfgang Puck employs an acronym it calls the VAST strategy to find locations with promise.

"Great visibility, easily accessible, excellent signage and lots of pedestrian traffic going by your front door, especially since our business is really about convenience and impulse, not so much destination," said Ron Biskin, president of Wolfgang Puck Express Licensing LLC in California.

Leasing costs also are important to an operation's long-term viability, since downtown rents are typically higher than what they would be in the suburbs.

"You've got to be savvy and knowledgeable on the real estate side to negotiate the kind of deal with a landlord that will enable you to achieve your financial success," said Bill Post, founder, president and CEO of Chicago-based Roti Mediterranean Grill. "When you sign a lease with a 10- or 15-year obligation, you have to have the kind of foresight to negotiate the best deal you can at that point."

The upside to the rent dilemma is that fast casuals typically don't need much extra square footage for tables and chairs.

"We don't rely on loss of seating because most of our business is grab and go," Frechette said.

Since restaurants need kitchen space, operators also must consider mechanical aspects such as ventilation and plumbing. A retailer that previously occupied the space might not have needed those things.

"The biggest challenge in an urban market is that it's vertical, so having the necessary venting or exhaust in place is very important for a concept like us, where our product is freshly made," Biskin said.

In turn, operators say keeping rent and other overhead costs down helps them keep their menu prices within a reasonable range.

"It would take us outside our concept if we had to raise prices to justify the cost," Biskin said.

Keeping time

Location often dictates an urban fast casual's schedule, with entertainment districts, office buildings, residential areas and transportation hubs each requiring their own unique set of hours.

"Depending on where in the metro area they're located, different dayparts can take on a greater or lesser role in importance," Riehle said.

Being in a downtown business district, for instance, often means serving breakfast during the first part of the day and lunch in the second part.

"For us, we can play around the edges," Frechette said. "We have a strong morning business and a strong lunch business, so we're not exclusively relying on the lunch daypart."

But feeding the breakfast and lunch crowd presents its own set of challenges.

"Transportation for employees in the morning can be kind of tough," said Frechette. "If you have employees who rely on public transportation but you open at 6 a.m., obviously that's a factor we have to take into consideration.

"Some managers will offer those employees a parking stipend, while others will just rework the schedule around those individuals."

Scheduling food deliveries can be another issue for urban fast casuals.

"The guys bringing in the produce and raw goods are looking to get in and out before the city gets crazy," Frechette said.

Long-term growth

As any metropolitan restaurant operator knows, a neighborhood's real estate can go from up-and-coming and cheap to oversaturated and overpriced overnight. Staying abreast of the market is critical to long-term growth.

"The managers of those units really need to be in tune with the local economic infrastructure of the small radius around that operation," Riehle said. "Depending on whether an area flourishes or declines translates into customer traffic for that unit."

Negotiating a good, cheap long-term lease is a must, Frechette said, but so is knowing when to get out.

"Our company is willing to walk away from a site we've had for several years because when we renegotiate the lease, it gets too expensive," he said.

And it doesn't hurt to diversify outside of downtown, operators say.

"If you're gong to build a larger fast casual concept, you really have to get validation from suburban and urban markets," Post said. "In the suburbs, you're attracting families, children and dinnertime business. That can be challenging to fast casual concepts."