Emerging Restaurant Chains: 10 to Track

Smart expansion plans, tight management and clear competitive differentiation allow regional and national restaurant chains to grow even in less-than-ideal economic conditions.

By Kate Leahy and Christine LaFave, Editors -- Restaurants & Institutions, October 1, 2008

Thriving restaurant chains are quick to note that success isn’t a function of any one thing. It isn’t established in serving up a burger constructed so carefully as to inspire a ground-beef epiphany. It isn’t confirmed in getting counter staff to smile and ask guests “How’s your day going?”

Success is driven by food-and-beverage quality and service style, to be sure, but the whole of the restaurant experience is greater than the sum of its parts. As increasingly demanding customers set the bar ever higher for chains that seek their loyalty, the delivery of a differentiated experience can help elevate a concept in its category. Craveable food will get an operation only so far; a craveable experience on top of a memorable menu will get it farther.

The 10 emerging chains profiled here seek to distinguish themselves both in the preparation of their food—meats slow-roasted in-house at Las Vegas-based Capriotti’s, pizzas baked in a wood-fired oven at Charlotte, N.C.-based Brixx—and in the unexpectedness of the experience they offer—grab-and-go étouffée, frozen treats in an environment that actually encourages lingering.

Although not all of the chains outlined here have ambitions of national growth, they share distinctive themes, customer popularity and comprehensive growth plans.

YATS

Focus: Cajun-Creole
Category: Fast-casual
Headquarters: Indianapolis
Founded: 2001
Locations: 6
Average check: $7.50
Growth plan: 9 more company-owned units in Chicago.
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With six locations in hip neighborhoods of Indianapolis and Chicago, Yats caters to young urban professionals and students who crave authentic, inexpensive Louisianan cooking.

Founder Joe Vuskovich ran multiunit restaurants in New Orleans, then operated a wholesale food company. He now incorporates both experiences into running Yats: using a commissary kitchen to prepare the slow-cooked Southern dishes and make them easy to serve in a fast-casual environment.

“I decided to get back into the food business at the retail level, but I wanted to do something that was going to eliminate a lot of inventory and a lot of labor,” Vuskovich explains.

Average unit volume is about $600,000. Dishes, which range in price from $4.50 to $6.50, include jambalaya and a popular crawfish or chicken étouffée smothered in cheese—a nontraditional addition Vuskovich attributes to the company’s Midwest locations. The menu also offers vegetarian and vegan options.

Because the menu changes daily, fans turn to the Web site to review current selections. Meanwhile, Yats’ profiles on social-networking sites Facebook.com and MySpace.com keep the chain’s fan base connected.

Bread & Company

Focus: Bakery-cafe
Category: Fast-casual
Headquarters: Nashville, Tenn.
Founded: 1992
Locations: 4
Average check: $12-15
Growth plan: 16 company stores added over six years; focus on the southeastern states.
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Artisan bakeries that produce breads leavened with a natural starter need skilled labor and training. Add to that hand-crafted pastries and desserts, and an extensive menu including made-to-order breakfast items, pasta and scratch-made soups, and it’s a wonder that Nashville, Tenn.-based Bread & Company was ever able to expand beyond one unit.

“We are true artisan producers,” says Vice President George Green. “We make virtually everything ourselves and we do not use preservatives in anything.” The handcrafted focus has paid off. Bread & Company increased revenue 44.2% to $11.1 million in 2007 from $7.7 million in 2004. With an average unit volume of $2.75 million, the chain grosses more per unit than most bakery-cafe concepts. (Average unit volume last year of bakery-cafe concepts was $911,000, according to research in R&I’s 2008 Top 400 Restaurant Chains.)

Bread & Company has grown revenue not by adding units but by building efficiencies in catering, production, employment and scheduling. A central office now handles catering orders while a commissary kitchen increased capacity of house-made goods and allowed the company to resume selling its breads wholesale.

Such steps poise the company to expand regionally by partnering with investors.

“There are ways that we could make more money, but if it sacrifices the quality of the food, we won’t do it,” Green says.

Red Mango

Focus: Frozen yogurt
Category: Quick-service
Headquarters: Sherman Oaks, Calif.
Founded: In Korea in 2002; first U.S. unit opened in 2007
Locations: 38 in the United States
Average check: $5-$7
Growth plan: Continued opening of company-owned units in existing markets on East and West coasts and in the Chicago area.
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Riding the wave of interest in yogurt as a functional treat, Red Mango serves 100%-natural, nonfat, gluten-free frozen yogurt that tallies in at only 80 calories per 4-ounce serving. The probiotics-boosted yogurt is available in two sweet-tart flavors: Original and Green Tea. Toppings range from fresh blackberries to fruity cereal.

“The No. 1 thing is to keep everything simple and transparent to the customer,” says Red Mango founder, CEO and President Daniel Kim. “We saw an opportunity to create a stylish and uplifting yet comfortable store that a lot of other treat shops weren’t able to capitalize on.” He adds, “Our customers demanded that we create an experience that goes beyond the product, environments that people enjoy lingering in.”

“When people want treats that are good for them, I want them to think Red Mango,” he says, adding that his primary goal is to make the brand part of people’s lifestyle, as Starbucks began to do for customers in the 1990s. “Once you become part of someone’s lifestyle, people can [visit] over and over again.”

Jimmy’s Egg

Focus: Breakfast and lunch
Category: Full-service
Headquarters: Oklahoma City
Founded: 1980
Locations: 13
Average check: $7
Growth plan: Three more units to open by the end of 2008; franchise-development deals inked for Springfield, Mo., and in the works for Houston. 
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Having established itself as a favorite in Oklahoma City, Jimmy’s Egg now is accelerating growth in the Great Plains and Southwest. “The economics of the financial model are excellent,” says Jim Burke, owner-manager of Jimmy’s Egg Franchise Systems LLC. Because the concept is open only for breakfast and lunch, operating costs are lower and the hours are attractive for novice and experienced franchisees. In a strip-mall space with 3,000 to 4,000 square feet, Burke says, a franchisee can open a Jimmy’s Egg for less than $400,000.

The chain aims to win over guests with a strong value proposition. “Because we are very much a value player, we’re going to be a couple of bucks under the national breakfast guys,” Burke says. Menu items top out at $8.29 (for the Big Jim, a five-egg omelet with 10 ingredients of the guest’s choice) although the average check hovers around $7. “We can grow when the economy’s not exactly booming because we’re going to be the value choice for a lot of people,” Burke says. Unit sales volume averages just under $800,000.

Brixx

Focus: Pizza
Category: Casual
Headquarters: Charlotte, N.C.
Founded: 1998
Locations: 12
Average check: $10-$11 at lunch, $13 at dinner
Growth plan: One unit by the end of 2008, 50-60 stores in the South within five years.
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How to keep customers streaming through the doors of a casual pizza concept, especially in a shaky economy? Eric Horsley, founder and partner at Charlotte, N.C.-based Brixx, seems to have found a few answers: Employ a distinctive cooking preparation (wood-fired baking) that gives foods a signature flavor, and offer items at a price point that’s easy on the wallet.

“I think there’s a lot of value in what we’re doing,” says Horsley, whose 12 Brixx units in the Carolinas and in Nashville, Tenn., menu the majority of their 10-inch pizzas for $8.95 or $9.95. In addition to offering traditional American (pepperoni and mushroom, four-cheese) and contemporary favorite (barbecued-chicken) varieties, Brixx serves out-of-the-ordinary pies such as Pear & Gorgonzola and Rustica. Vegan cheese is available on any pizza for no extra charge.

Boloco

Focus: Burritos
Category: Fast-casual
Headquarters: Boston
Founded: 1997
Locations: 13
Average check: $7.50
Growth plan: Three more units by the end of 2008.
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At Boston-based Boloco, a rebranding helped clarify the concept for customers and position the chain for further growth. Founded as The Wrap in 1997, the chain was rechristened as a burrito concept in 2004 after executives decided that the term “wraps” didn’t accurately suggest the chain’s staple menu item: warm flour tortillas wrapped around hot, fresh ingredients. Not all of the burritos boast Mexican flavor profiles—Mediterranean and Bangkok varieties are outside-the-norm offerings—but all are made to order and available in regular or large sizes. Proteins include chicken, steak, carnitas and tofu; wheat tortillas and brown rice are available.

Most of the chain’s 13 units are located near college campuses. President and Chief Operating Officer Mike Harder says the chain will focus its growth on New England. “We’re still trying to make sure the wagon’s built right,” he says. “I’m a firm believer that if you have to put a slogan up on the wall about what you are, you’re probably not that.”

Bumblefish

Focus: Neo-Asian
Category: Fast-casual
Headquarters: Alexandria, Va.
Founded: 2003
Locations: 12
Average check: $10-$11 at lunch, $13 at dinner
Growth plan: Expansion in central business districts in Philadelphia and the Washington, D.C., area.
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Bumblefish’s entrance into the Philadelphia market in July was an eye-opener for the chain, according to Bumblefish founder and President Kent Scholla. The chain has prided itself on offering an approachable menu of vegetarian, cooked and raw sushi rolls with fun names such as You Sunk My Battered Shrimp. But in Philadelphia, many diners “just aren’t sushi fans,” Scholla says. “So now we’re going a little bit broader on our menu.”

A focus on breadth rather than depth of menu is proving worthwhile, as guests have given a strong reception to dumplings, spring rolls and cold noodle dishes. “They seem to be reacting very well to our broader menu development,” says Scholla. A friendly approach to labeling—calling a dish “Thai peanut noodles” rather than “pad Thai,” for instance—also has helped reduce intimidation, he says.

With a goal of opening company-owned units in central business districts over the next several years, Bumblefish aims to expand its reach among professionals who seek healthier lunch options and unique flavor profiles. The chain wants “a share of the stomach,” Scholla says—a positioning as an alternative to pizza, sandwiches and megasalads.

Johnny’s Lunch

Focus: Hot dogs
Category: Quick-service
Headquarters: Toledo, Ohio
Founded: Original: 1936, second location: 2007
Locations: 7
Average check: $7.40
Growth plan: More than 1,000 in 5 years.
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Growing up, Anthony Calamunci worked behind the counter at his grandfather’s diner in Jamestown, N.Y. Today, Calamunci and his brother, John, have groomed their grandfather’s hot-dog and burger spot, turning it into a quick-service player primed for national expansion.

To set Johnny’s Lunch apart from other quick-service concepts, the Calamuncis focus the menu on hot dogs. The most popular item is a ¼-pound dog served with a signature chile sauce.

“Nobody has emerged as a leader in the hot-dog category,” says Anthony Calamunci; the brothers aim for Johnny’s Lunch to be the first.

Before expanding, the company invested in infrastructure and national psychographics research. “We’ve got a brand that transcends geographical boundaries,” Calamunci says.

The initial investment for a Johnny’s Lunch franchise is about $260,000; more than 1,000 stores across the country are in development.

Capriotti’s

Focus: Sandwiches
Category: Quick-service
Headquarters: Las Vegas
Founded: 1976
Locations: 54
Average check: $10
Growth plan: 400 units in five years.
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What started as a Wilmington, Del., sub shop is now a winner for the poker players and gamers in Capriotti’s current home base of Las Vegas as well as sandwich lovers from Florida to Utah.

Part of the reason: high-quality sandwich fillings that appeal to diners’ sense of adventure. Turkey and roast beef are cooked overnight; the slow-roasting “makes a much better sandwich,” explains CEO Ashley Morris. “We have traditional sandwiches but also ones that are unique and creative.” That turkey, for instance, is paired with stuffing and cranberry sauce.

Morris stumbled on the chain as a college student. Eating there almost daily, he became a franchisee, then later a franchisor. Last year, the chain grossed approximately $35 million. Morris expects 2008 revenue to increase 10% to 15% over 2007.

To meet his five-year goal of 400 units, Morris plans to sell individual and multiunit franchise deals.

Tilted Kilt

Focus: Entertainment
Category: Casual-dining
Headquarters: Tempe, Ariz.
Founded: 2003
Locations: 11
Average check: $25
Growth plan: 50 units open by 2009
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While established casual dining chains struggle to differentiate themselves, newcomers in casual dining seek success by providing more than good food.

Explains President Ron Lynch: “We’re in the entertainment business. That puts us in our own separate niche.”

While the menu includes pub standards such as burgers, the real draw comes in the form of short skirts. The front-of-the-house hiring process, billed as a “casting call,” aims to attract women and men willing to wear kilts in the dining room.

To expand the franchise, Lynch partners with experienced restaurant operators with solid track records and access to capital. A Tilted Kilt location requires franchisees with $400,000 in liquid capital and $1 million in net worth.

“We have 48 restaurants in our pipeline that are either open, under construction, have a lease, or are getting close to having a lease,” Lynch says.