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Lunch wars: How fast casual took over D.C., and why the boom is fading

Washington, D.C., isn't usually the first for food trends sweeping the nation. Upscale ramen shops, for example, got here after hitting New York and San Francisco. Likewise with food trucks, crepes and tapas.

But there's one culinary phenomenon for which D.C. is second to none: The rise of fast-casual restaurants, that category in between McDonald's and Applebee's, with an haute cuisine twist.

Seemingly every week, a well-designed new lunch spot opens up, or the third or fourth or fifth branch of an existing one, with impressively fresh ingredients and fast turnaround — Chop't, Sweetgreen, Zoup, Chix, Thaaja, Newton Noodles, Vapiano, Potbelly, Cosi, Shophouse. They're usually some version of the proven Chipotle model, with an assembly line of base (wrap or salad?), protein (chicken, beef, or tofu?) and veggies (pick four).

That's no accident. Professional Washington had been under-lunched for decades, with limp cafeterias and high-powered white tablecloths and not much in between. A sustained employment boom has created a resurgent downtown full of affluent office workers, and perfectly matched the emerging style of food service — while still having lower costs than otherwise appealing markets such as San Francisco and New York City.

"D.C. has been the epicenter of fast casual development, because it's educated and working," says Peter Nolan, chief branding officer of Roti, which is shooting to be the Chipotle of Mediterranean. Sitting at one of the dark wooden tables in his K Street location, Nolan pointed out the "racetrack" that funneled people in towards the assembly line, the beautifully photographed new catering menu for offices that wanted to order in bulk, the "micro-upscaling" touches that make people feel like they're treating themselves well. He even describes Roti as part of something bigger. "I would say we're part of the healthy real food movement," Nolan says.

It's not just a D.C. phenomenon, though. The sector is now worth $31 billion, according to research firm Technomic. That's only 14 percent of the overall limited-service restaurant business, but its sales are growing by double digits every year (it now even has its own magazine). With Chipotle's stock up 80 percent in 2013, and the wildly successful initial public offerings of Potbellys and Noodles & Co. over the past several months, Wall Street has been clamoring for more fast casual concepts to invest in. That, in turn, has fueled even more growth.

"I think the Noodles IPO woke people up to this space," says Brett Schulman, CEO of the Rockville, Md.-based Cava Mezze Grill chain. "It's not as sexy as a tech company, but a well-run business in this category can be really profitable if it's executed well. It's not an overnight kind of thing. It can be this nice, steady, long-term growth vehicle if you do it right." Just today, tech-centric venture capitalist and AOL co-founder Steve Case put $22 million into the Sweetgreen, which has opened 22 locations in six years.

So what does it take to build a replicable restaurant in this kind of market? And is there ever a point where D.C. will have enough?


The story of the past several decades of chain food service has been one of two categories: Fast food or "quick service," with highly mechanized preparation and prices as low as possible, and "casual dining," with outlets like Denny's and Ruby Tuesday offering a sit-down experience that won't break the bank.

Casual dining outlets over-expanded and took a big hit in the last recession. The last few years have seen a convergence: Higher quality food without the wait. Nick Marsh, who's engineered several fast casual concepts and is now the CEO of Chop't, traces the trend back to Starbucks. They commercialized high-end coffee, and made it popular.

"They were trying to be better, and they were specialists," he says. "I think the way the consumer has pointed, they're really only willing to believe in this day and age that you're able to be good at a narrow set of things."

It's one thing to find a concept that people like. It's another to put it into hyperdrive. Chipotle had a somewhat unique advantage, having been purchased by McDonald's back in 1998, when it was just 14 locations. With the resources and purchasing power of a gigantic multinational company — everything from buying soda to finding real estate, not to mention $360 million in capital — it expanded to 460 locations by 2005, when McDonald's decided to spin it off. (Fast food brands such as Sbarro and sit-down ones like Red Lobster have since tried to reach into fast casual, with decidedly limited success.)

Unlike many smaller chains that were gobbled up by larger ones — like Baja Fresh, which Wendy's bought in 2001, and turned into run-of-the-mill fast food — Chipotle managed to stick to its core concept. It never franchised, allowing it to maintain quality standards. With a less mechanized preparation method and no need for the infrastructure of a drive-through, the build-out costs are lower, at around $750,000 per location to over a million dollars for a free-standing fast food restaurant. But with simple ingredients and a customer that cares more about quality than price, the profit margins are fairly high, and growing fast with scale. And thus, a model was born, with hundreds of new chains molding themselves in its image.

"Do they want to be the next Chipotle? Sure," says Peter Saleh, an analyst with Telsey Advisory Group. "Investors are looking at these and saying, if these are real concepts that can double, triple, quadruple in size if not more than that, they're great investments people can make."

What does the new breed look like? Fast casual restaurants tend to have most of their technology in the front of the house, with customer loyalty apps and online ordering rather than complicated food preparation systems. They're very often "all natural" and organic, and build advertising around where their ingredients come from ("Food with integrity," is how Chipotle puts it). And they specialize in one cuisine, but aren't sticklers for authenticity.

"We're not making traditional Indian food," says Qaiser Kazmi, CEO of Merzi, a Chipotle-style concept in downtown D.C. Americans, he said, can get themselves in trouble when they're unfamiliar with traditional ingredients. "A lot of things I did at Merzi were, 'how simple can I make it?' "

There's one way in which the fast-casual sector is exactly the same as its fast-food predecessors: Rock-bottom wages. But some entrepreneurs are trying to bring the treatment of workers in line with the prevailing claim to more virtuous food. John Pepper, who founded the Boston-based, 18-location burrito chain Boloco before leaving this fall over an investment dispute, tried to redeploy some of his profits into paying workers substantially above minimum wage.

"Our mission statement has nothing to do with making food, but really has to do with using food to take care of the lives and futures of our people," he says. "You can't just say, 'Oh, we're going to go to $15 an hour like the protesters want. But every company should be on a path to getting there."


So far, most fast-casual restaurant chains are a long way from going public. But even with decent margins, they generally don't throw off enough cash to scale on their own. "Although all our stores are very profitable, they're just not profitable enough to open as many stores as we want," says Matt Matros, CEO of Protein Bar, which expanded straight from Chicago to D.C.

Lucky for him, there are a lot of investors itching to put their money into restaurant concepts. Matros said he had about 30 firms interested in funding Protein Bar, and had extensive talks with four of them before deciding on Catterton Partners, a consumer-focused group based in Greenwich, Conn. that offers help with recruitment, shared services with other portfolio companies, and board members with deep industry expertise. They were behind brands like Caribou Coffee and P.F. Changs, and have been picking up small fast casual chains all over the country — like Protein Bar, which expects to get to 25 locations by the end of next year, and Columbus, Ohio-based PIADA Italian Street Food.

What's Catterton looking for in an investment? Well, they have to have great food. But mostly, says managing partner Scott Dahnke, lunch-goers do the work for him.

"The beauty of it is, by its very nature, fast-growing consumer businesses have a heat signature, because they're trying to attract consumers," says Dahnke. "So they're in a sense hiding in plain view."

Dahnke is also bullish on the D.C. market, for the same reasons Roti's Nolan is — an affluent population that appreciates good food but tends to get it to go. However, he notes, the market is getting saturated. The node around 19th and L, for example, has a Potbelly, a Cosi, a Protein Bar, a Corner Bakery, a Chopt and a Boloco — which Pepper says hasn't been doing as well as its other locations.

Now, Dahnke says, D.C. has more fast casual restaurants per capita* than any city other than Las Vegas, and rents are a lot higher than they used to be. It's gone from bereft to brutally competitive in half a decade, and with the number of office workers capped by a limit on how tall buildings can get, the boom might be coming to an end.

Which just means the game is now about stealing lunches from everybody else.

"The urban customer has to eat lunch five days a week," says Chopt's Marsh. "I'm going to eat at the best burger place one day, the best salad place one day, the best sandwich place another day. Our goal is to get two days a week instead of one day."

* Corrected from an earlier version.