Upscale Appetites

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Upscale Appetites

WThese are just a couple of phrases tossed around about Café Express LLC, a pioneer in the burgeoning "quick casual" or "fast casual" foodservice segment, which now includes companies such as Atlanta Bread Co., Corner Bakery Co. and others whose salads, sandwiches, specialty beverages and other high-quality menu items are selling like hotcakes.

"The quick-casual segment delivers a value proposition the consumer wants," said Scott Van Winkle, principal, Adams, Harness & Hill, a Boston-based investment bank. "Fast-casual dining concepts compress a casual dining experience into a quick-service time frame, at price points in between both segments."

Nutrition considerations; a more mature, time-starved populace; menu fatigue; a more sophisticated consumer — all these trends have come together to support the rise of the fast-casual segment. Offering made-to-order foods with higher-quality ingredients than those found at the typical fast feeder, these restaurants feature prices in the $5-to-$10 range.

Customers either take out or, if staying in to eat, are out in 45 minutes or less. Many fast casuals do a healthy catering business as well.

"This is a refinement of the fast-food industry," said Allan Hickok, restaurant analyst, US Bancorp Piper Jaffray, based in Minneapolis. "The growth of food away from home is a 50-year trend, but the demographic profile of consumers has changed. Eating habits have changed — people in their 40s are eating fewer hamburgers than they did when they were in their 20s — and dual-income families and single professionals are willing to pay for service, taste and environment, as long as higher-quality food is offered."

At Pit Stop Convenience Centers Inc., based in Peachtree City, Ga., CEO W. Michael Hyde compares the quick-casual dining segment to the drugstore industry. "Clearly, any entity that takes any part of our business can be viewed as competition," said Hyde, whose company operates five c-stores and leases four others; three locations have Blimpie franchises. "We don't look at them as direct competitors. But then, we don't view drugstores as direct competitors, and they are, in a small sliver of their business, going at the heart of ours.

"We are seeing more prevalence of that type of delivery system. We've already suffered a thousand cuts. But I don't see it any different from an Eckerd's coming in and offering c-store items as part of its mix. I don't think we can stave these locations off; all you can do is carve your own niche. But I'd be more concerned if I was a stand-alone Blimpie."

The fast-casual dining locations are very different operations, he noted. "Yes, they do come after things we might otherwise have a shot at, but nothing that is our bread and butter. The day they go after our bread and butter, we will find ourselves in another line of business, by default. All we can do is what we do — offer convenience. People are buying back their time from us."

For instance, in the past, Pit Stop Convenience Centers offered Pizza Inn pizza. Although the organization and product quality were both excellent, Hyde said, his c-store customers did not want to wait three minutes for their food.

"They might sit down at Pizza Hut for half an hour," he said. "Even at a stand-alone fast feeder, people want quick service, but they usually plan to take a longer period of time to consume their food. When you walk into a restaurant, even a quick-casual, there is a mindset it might take while, maybe 20 minutes. But the mindset going into a c-store is different. If they aren't eating their food in four minutes, they are out of there or not coming back."

Taster's Choice

Most quick-casual restaurants offer counter service incorporating elements of self-service, especially for cold drinks. Some have servers delivering meals to the table after a counter order is completed. A number are experimenting with different service models by daypart.

All aim to offer a good value, a desirable balance between quality ingredients, retail price and convenience, in a comfortable setting that is the antithesis of the typical red, yellow and orange, molded plastic fast-food décor. In other words, they are offering everything fast feeders and c-store operators aren't.

"Three hot dogs for a dollar may be cheap, but they are not perceived as a good value," Van Winkle said.

At Houston-based Café Express, the average ticket is nearly $10. The menu at its 15 locations — in Houston, Dallas and Phoenix — includes pastas, salads, sandwiches, roasted chicken, soups and desserts, all prepared on site. Every location has a bar serving wine and beer, though these drinks don't make up a great percentage of sales.

The 5,000- to 6,000-square-foot restaurants offer seating for up to 160 inside, as well as a patio (or patios) seating from 40 to 100-plus additional customers. The average site rings up an average of $2.5 million in annual sales.

Customers make their selections at a counter — everything is made post-order and desserts are created on-site. Guests pick up their own beverage and take their orders, served on china and eaten with silverware, to the restaurant's signature Oasis Table, found in the middle of the restaurant.

The Oasis Table is dramatic to the eye, but functional. Holding a huge array of condiments — from Parmesan cheese and sun-dried tomatoes, to hot sauces, expensive olive oils and balsamic vinegars — the Oasis Table allows customers to customize their meals to taste, while providing service efficiencies.

"People don't mind doing some things themselves, if they can do it better," said CEO and co-founder Lonnie Schiller, who with wife Candice Schiller and Mimi and Robert Del Grande opened the first Café Express in 1984. "Our customers find the Oasis Table part of the experience. We see very creative use of the table. For instance, some customers have a ritualistic way of preparing their dish of pasta. If they want capers, they can go crazy."

The restaurants, which started as upscale delis with fewer dinner items and a more "utilitarian" décor with harder surfaces and flatter lighting, now feature a warmer ambiance.

"There is symmetry to the whole thing — service, the decor and the food magnetize you to come to a restaurant," Schiller said. "Customers are very savvy, especially at an affluent level, and can feel it if the package doesn't all work together."

A Makeover Story

Though Boston Market Corp. (then Boston Chicken) got off to a rousing start in 1985, overexpansion — in locations and, some would say, menu offerings — hurt operations. The chain declared bankruptcy in 1998. In 2000, the company was bought by Golden Restaurant Operations Inc., a subsidiary of McDonald's, for $173.5 million. Underperforming stores were closed. Prices were cut to drive volume.

But the better-than-fast-food menu — including chicken, turkey, ham and meat loaf, vegetables and other sides, sandwiches, soups, salad and desserts — was not matched by a high-quality dining experience. Restaurants typically featured cafeteria-style service and sit-down areas that resembled traditional fast-food restaurants.

Now, the chain is relaunching the brand, with the restaurants looking more like their fast-casual competitors. The New Boston Market program, unveiled in January, includes new exteriors and warmer-looking interiors for all new restaurants, as well as the remodeling of existing sites. A change of colors to rustic red, hunter green and soft browns is a drastic turnabout from the chain's roots.

"Every detail, from the new color scheme to the floors, is aimed toward providing the customer a dining experience that better matches the Boston Market's hallmark of quality home-style meals," said Keith Robinson, senior vice present of strategy, last winter, when a new store in Eagan, Minn., was unveiled.

"I think Boston Market is a pretty good fast-casual," said analyst Hickok. "The problem they've had as a company is it is a low-frequency concept. People are not going more than 0.8 times a month. That is a problem." The chain's average check is $9.20.

Creative Concepts

"Quick-casual is a great place to be," Van Winkle said. "But it is all concept-driven. Some concepts offer a bit more value, a bit more convenience."

The 76-location Corner Bakery Café chain, parented by Dallas-based Brinker International, which operates casual dining giants Romano's Macaroni Grill and Chili's, can be found in the Washington, D.C., area, Atlanta, Dallas/Fort Worth, Denver and Southern California. In fiscal 2003 (ending next June), the chain expects to open 10 to 12 more units in its existing markets, also without the help of franchisees.

The concept — originally created by Lettuce Entertain You Enterprises Inc. as a joint venture with Brinker — was born as an adjunct to Maggiano's Little Italy, said Tim Smith, Brinker's director, corporate communications. The first site was literally a corner bakery supplying Maggiano's with bread and baked goods and doing a bit of retail business.

Menu items now include sandwiches, such as Ham on Pretzel Bread ($5.99; served with chips and a pickle), soups, side salads like DC Chicken Salad (with apples, currants, red onion, celery and almonds for $2.99) and baked goods. (Smith is partial to the lemon bars.) Corner Bakery's signature potato chips are made daily. The average ticket: approximately $7.50.

"It's the restaurant equivalent of a TV spin-off," Smith said, noting the restaurants are open for three dayparts. "Lunch and catering are our heaviest usage. Breakfast is next and dinner is fairly light, depending on the location. But the takeout element does support dinner."

Corner Bakery is experimenting with a number of service models. Early on, customers went through a serving line of food displays. In most cases, the customer ended up at the end of the line with all of their food, Smith said. At times, additional prep or heating was called for and the order was delivered to the table. In newer stores, the chain is using table service, after food is ordered at a counter. Beverages remain self-service.

"In an absolute sense, we would consider c-stores competition," Smith noted. "But they are not a large part of our focus. There is enough competition going on in the fast-casual segment. We are aware of fast feeders and enhanced delis at grocery stores, but those have a whole different mindset and product [line]."

Between the Bread

While many c-stores established a foothold in fast food with deli meats served on a roll, the bulk of today's fast-casual chains are growing on a foundation of specialty sandwiches. In this instance, though, the sandwiches start with just-made signature breads and top-of-the line, often out-of-the-ordinary ingredients. For example, Panera Bread Factory, based in Richmond Heights, Mo., has more than 330 bakery cafes. Cosi Inc., based in New York City, has approximately 80.

Atlanta Bread Co., based in Atlanta, is one of the fastest-growing operations. With more than 165 Bakery Cafes in 27 states, eight-year-old Atlanta Bread Co. has another 140 sites in various stages of development.

The company operates a 110,000-square-foot commissary in Smyrna, Ga., from which all the bread and pastries are produced from scratch, nearly 24 hours a day. Frozen dough and par-baked items are delivered overnight in refrigerated trucks to the restaurants, where they are baked daily on-site.

"Where some fast-casuals sell baked goods from third parties, we are manufacturing everything ourselves," said President and CEO Jerry Couvaras.

Atlanta Bread Co.'s restaurant decor echoes many fast-casual restaurants: hardwood floors, a brick fireplace, seating in conversation clusters, soft classical music. The chain has shifted its color scheme from hunter green to black and buttery gold in the new locations.

By 2007, the executive expects the company to reach $1 billion in sales, chiefly by focusing on franchising (typical capital investment per restaurant: $800,000), especially in the West, and by selling branded pastries and breads in c-stores, office building stores and company "canteens," as well as in other retail outlets. The chain already has placed kiosks of fresh baked goods, serviced daily by Atlanta Bread Co., into selected c-stores. The kiosks can be found in Pittsburgh, Jacksonville, Fla., Atlanta and New York. The company is considering locations in Dallas now, Couvaras told CSNews.

"We will look at various c-stores, but will only put our kiosks in good-looking, well-run stores with lots of inventory," he said, adding a test of signature sandwiches and other items for sale through the kiosks is being considered.

Depending on the concept — and sales — labor costs may be higher for the fast-casual operator. Still, consumers provide a great deal of that labor himself, and their expectations will be lower than for the full-service casual dining restaurant.

Despite the demand for these concepts, all isn't sunshine and roses for the fast-casual segment. "People are willing to pay more for the food, but they'll want more [from the fast-casual experience]," Hickok said. "Offering speed, low price and high quality is not easy. Since the higher-quality, made-to-order items can't be delivered as fast as fast food, can these places get the throughput they need to be successful?

"Plus, as we've already seen, there will be a competitive response from fast feeders, c-stores and casual dining operations, many of whom have beefed up their takeout business model."