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CENTERS ACQUIRE TASTE FOR FAST-CASUAL

BY JON SPRINGER

Ron Biskin is a busy man. The senior vice president of development for the Baja Fresh Mexican Grill chain is overseeing an expansion that has already more than doubled the size of the Thousand Oaks, California-based chain in just two years. But that’s only the beginning — Baja Fresh’s owner, Wendy’s International, has said its long-range vision is for 700 restaurants by 2007.

Taking into account the 246 locations already open, Biskin is reminded that this means a pace of about two new restaurants a week over the next four years. “The thought keeps me up at night,” he admits.

Shopping center developers are waking up to the concept as well. Fast-casual, little more than a buzzword a few years ago, is a full-blown phenomenon today. Part of what drives Baja Fresh is competition from other fast-casual, “fresh Mex” names: Chipotle, La Salsa, Qdoba. All of them, in turn, are competing for spots with other eateries considering themselves part of the fast-casual niche. These include bakery cafés Au Bon Pain, Corner Bakery and Panera Bread Company; Asian fast-casuals Pei Wei Asian Diner (a rollout of Scottsdale, Ariz.-based casual chain P.F. Chang’s) and Pick Up Stix; and such sandwich shops as Schlotzky’s Deli.

Positioned to drive a wedge between quick-service restaurants, or QSRs, and full-line casual restaurants, with their ambiance and quality food, the fast-casual concept emerged in the Western United States in the 1990s, long before there was even a name for it. (Many operators still quibble with the title — Chipotle prefers “fast gourmet,” while Pei Wei offers “quick casual.”) Semantics aside, however, restaurants considered to be fast-casual differ from QSRs in that the food is made to order, the average check is slightly higher and a greater emphasis goes into store design. In addition, partly because they tend not to have drive-throughs, boxes are smaller and often located in-line or in endcaps at shopping centers rather than on corners as freestanding units.

Their appeal is to customers who are as hungry for time as for a good meal and for whom the “experience” of a restaurant counts, observers say. Similar “experiential retail” aspects are behind the growth of Starbucks, stadium-seating theaters and other tenants that have used improved consumer experience to drive higher prices and greater traffic at otherwise tired retail offerings.

“We see fast-casual as an emerging trend that fits in very well with our shopping centers,” said Nina Robinson, senior director of retail properties marketing at Newport Beach, Calif.-based Irvine Co., which owns several centers that lease to fast-casual operators in Southern California. “It fits in perfectly with the lifestyle of today’s shopper.”

So convinced of the segment’s potential is Irvine that in June it opened The Bluffs, a neighborhood shopping center in Newport Beach, Calif., whose tenant list includes some of the biggest players in the category: Baja Fresh, Panera Bread, Quizno’s and Pei Wei. The 51,000-square-foot Bluffs is managed by Madison Marquette Retail Services, Washington, D.C.

Robinson says the concept was created to serve the daytime working communities at office parks. She compares the leasing strategy to the clustering of casual restaurants in a regional mall.

“The synergistic efforts will result in a strong lunchtime draw and attract busy people on their way from work who want to bring a good, healthy dinner home,” Robinson said. “We find the same kind of synergy at The Bluffs as we do with the sit-down restaurants at Fashion Island,” she says, referring to Irvine’s regional mall in Newport Beach. “The P.F. Chang’s, California Pizza Kitchen and Cheesecake Factory are all in the same area, and they all work well together.”

Most fast-casual chains contacted by SCT describe ambitious plans for growth, fueled in some cases by familiar names and their franchisees. Dublin, Ohio-based Wendy’s International bought Baja Fresh last year for $275 million. McDonald’s is a majority owner of Chipotle and has a development deal and an option to buy Fazoli’s, a Lexington, Ky.-based Italian fast-casual player with some 400 restaurants. La Salsa is operated by CKE Restaurants, Santa Barbara, Calif., operator and franchisor of Hardee’s and Carl’s Jr., and earlier this year Jack in the Box bought Qdoba.

Chipotle, founded just over 10 years ago in Denver, had 269 stores in over a dozen states as of August and was on pace to open 100 stores this year, according to Rex Jones, Chipotle’s director of real estate. Jones recalls his first visit to the ICSC Convention in 1998, when Chipotle was just a 15-store chain in and around Denver.

“The questions we got from developers back then were, ‘Who are you guys?’ and ‘How do you pronounce that name?’” Jones said. “This year, they’re asking us, ‘When are you coming to my market? Let’s do some deals.’”

Chipotle prefers to locate in trade areas that have about 15,000 residents between 18 and 49 and daytime populations of at least 10,000, says Jones. The chain tends to perform best where there are higher education and income levels, and especially well in college towns, he adds. Once Chipotle selects a market, it is flexible and quick to move. It has opened new restaurants in vertical office towers in urban areas, on endcaps in community centers and on pad sites. The units span from 2,100 square feet up.

Indeed, one difference between Chipotle and its competitors, says Jones, is that no two Chipotle stores are quite the same. Most, however, tend to go for a chic industrial look the company calls “cantina moderne,” featuring exposed pipes and a spacious feel. “There’s a price to being unique,” Jones said. “But developers have told us they really love the look we’ve brought to their centers. I think it helps attract customers and brings a high-end, vibrant look to our space.”

Baja Fresh is Chipotle’s top competitor, both in the fast-casual “fresh-mex” segment and among their quick-service parents. According to Biskin, the chain prefers to locate its roughly 3,000-square-foot eateries on endcaps in centers anchored by the trade area’s leading grocer. Coffee shops and juice bars make strong co-tenants, and the chain attracts similar customers to health clubs and bookstores, Biskin says. Most Baja Fresh stores try to incorporate an outdoor patio with palm trees.

“One of the attractions of Baja Fresh is the flexibility in our development efforts,” Biskin said. “We can go into an existing building, we can chop up a larger space and share it with others, and we have a freestanding prototype we’re rolling out this year. If we find a good trading area and good piece of real estate, we’ll find out how to get there.”

And get there quickly, too. Biskin says the typical construction period for a new Baja Fresh store is nine weeks.

A Baja Fresh unit recently opened in an endcap space at Kenilworth Commons, a 99,200-square-foot center in Charlotte, N.C., owned and managed by Columbia, S.C.-based Edens & Avant. According to Lyle Darnall, Edens’ vice president of retail development, deals for Baja and other fast-casual category players have been a boon to community shopping center owners.

“We love ‘em,” Darnall said. “It’s a higher-quality food offering than a McDonald’s or a Subway, and the kind of places that complement everyday-necessity retail centers. I had a business lunch the other day in a Panera Bread. You know, I’m not going to take a guy to Arby’s and have a business lunch.”

Shoppers at The Bluffs, Newport Beach, Calif., don’t go hungry: It has four fast-casual tenants.

Austin, Texas-based sandwich chain Schlotzky’s Deli was born in 1971, a good 30 years before anyone had ever said “fast-casual.” But the 600-store Schlotzky’s saw that its offering — made-to-order sandwiches on fresh-baked artisan bread — fit the fast-casual food definition all along. Now facing a slew of new competitors, Schlotzky’s has begun to modernize its stores, add new menu items, and introduce better design and amenities, including flatware and dishes. The changes, based on Schlotzky’s well-regarded flagship store in Austin, which opened in 1995, were instituted this year in Texas.

“We’ve done a series of designs ranging from 3,500 to 6,000 square feet that draw on our Austin store,” said Schlotzky’s President and CEO John Wooley. “The thing I like about it is that it’s been based on something we’ve been doing since 1995, so we know we can do it from an execution standpoint.” Rollouts of the revamped Schlotzky’s (dubbed Concept 2005) began this spring. The units that made the switch posted an immediate double-digit sales increase, Wooley says.

“Our challenge is to be able to design backwards and get the franchisee who’s been with the chain for 20 years and say, ‘Here’s how to stay with us and stay relevant,’” Wooley said. “It’s created a lot of excitement among our franchisees. They’re seeing a way to dress up their stores and better compete with the Paneras and offer a product that’s second to none.”

Wooley says the chain will work to get its franchisees’ stores on board with Concept 2005 this year. It seeks to open 40 to 50 new units in 2004. “These stores certainly have the look and feel that people would be proud to have in their shopping centers.”

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