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The rise of the healthy UK fast-casual chains

May 22, 2012

The rise of the healthy fast-casual chains

Neil Gerrard
Thursday 02 September 2010 10:42
ChilangoThe popularity of home-grown fast-casual chains with an emphasis on healthy food is ballooning. Neil Gerrard finds out how they ditched fries for fruit and vegetables.

London’s Fleet Street isn’t exactly under-served when it comes to fast-casual dining outlets. A quick glance up and down the road reveals a McDonald’s, a Pret, and a Wagamama to name just a few. All are doing a healthy Tuesday lunchtime trade, but it is the brightly-coloured Mexican-style eatery Chilango which has the suited office workers queuing out the door and up the street.

It’s a similar story with Leon a few hundred metres further down the road in Ludgate Circus, with businessmen crowding in for a quick lunchtime pow-wow over a box of Morrocan meatballs or sweet potato falafel with aioli.

A long time has passed since fast casual dining meant being asked “do you want fries with that?” – the arrival of players like Nando’s, Pret A Manger and Wagamama several years ago saw to that.

But the past few years have seen a growing army of popular small chain restaurants that serve up their food quickly but also attempt to be stylish, fun, and even fairly healthy.

Most of them are home-grown businesses offering a lunchtime price point of around £6-£7 and many are London-based, although another Mexican operation – Barburrito – flies the flag for the movement in Manchester, Leeds and Liverpool.

There’s no chance of operations like this displacing their more established rivals just yet, but there’s also no denying they are on the up. And of course, it helps that the entire sector is growing fatter off a phenomenon of the recession which has seen fast casual sales grow 5.9% at the expense of many full service restaurants which are sliding backwards (see box on page 21).

But there’s more to it than just that. Sales at Barburrito’s mature sites are up 30% year on year. Chilango’s Fleet Street branch saw like-for-like sales for the past 12 months up 20% on the year before, which were themselves up 44% on the year before that.

Stephen Wall, who co-founded Vietnamese street food restaurant Pho which opened its fifth restaurant in Soho this week, puts the success of businesses like his down to changing tastes. “People are seeing and tasting the world quite a bit more and they are looking for alternatives to burgers and sandwiches. If you can deliver something that is a bit different then you have a good shot at success,” he says.

Health is also a much bigger consideration than it used to be, as Vincent McKevitt, founder of healthy eating and salad concept Tossed explains. “If you look at all the research on who the healthy eaters are, they will tell you it’s women, people who are into sports, and men of an older age who are concerned about their cholesterol,” he says. “But it’s all a load of nonsense because everyone has woken up to it and they are eating a lot more healthily.”

It was a gap in the market that Henry Dimbleby, co-founder of the renowned Leon group of restaurants, was quick to spot. “When we started, healthy food was synonymous with mung bean salads and a kind of wet and woolly, slightly soft service style. So there was a kind of association with healthy food as involving some kind of sacrifice,” he points out.

The ultimate aim then, is to pull in customers not because the food is healthy, but because they are hungry and fancy eating a tasty dish that isn’t going to plague them with calorie-guilt for the rest of the day.


VARIOUS APPROACHES

But it also has to be fast. Various operators have various approaches but Leon, with its multi-channel chute system and menu boards behind the counter most closely resembles the likes of McDonald’s and Burger King. To get that speed and efficiency right, Dimbleby says that he and co-founder John Vincent worked in fast food restaurants to examine the system they used. What they found was that they admired the standards of health and safety and speed of service, but not the food. “We asked ourselves what is it about this system that delivers food quickly but food that is unappetising, or even if it is appetising makes you fall asleep and feel a bit fatter?”

Chilango has gone for a slightly different approach – burritos and other dishes are made up for customers on the spot in a Subway-style service line, but walled off to the side behind a glass partition is a full service kitchen, with chefs pumping out freshly made ingredients from scratch. All the salsa and guacamole is made that morning, and they take their time over the meats used – the pork shoulder that is offered as one of the options, for example, is braised for seven hours before it is served.

Of course, that level of attention to detail comes at a price. Vincent McKevitt admits that Tossed’s commitment to quality ingredients means that margins are around 5% lower than he’d like them to be. “Everyone thinks we make loads of money, but carbohydrates are cheap whereas fresh fruit and veg are expensive especially in this country. That is why salad-led businesses predominantly never worked over here. But I am keen to prove it can work. What I have learned is it is better to have the best product out there and charge a little bit more,” he says.
FOOD COSTS

Meanwhile, Dimbleby points out that Leon’s aim to use what he terms “good carbs” and no “bad fats” means that food costs at his business are also “slightly higher”. Then again, both businesses offset these extra costs with lower wage costs – Tossed packs about 500 people a day into its outlets, mostly at lunchtime. For Leon, it’s about 800 throughout the day.

The way in which the restaurants are branded is also key to their success or failure. Barburrito co-founder Morgan Davies says that his company spent a lot of time and effort making sure that the branding was fun – through the medium of the chain’s mascot Derek the Donkey – but also communicated the quality of its food and its healthier properties. “We spent a lot of effort on the interior of the restaurants, making it a comfortable place to sit, suitable for fast service, and we put a big emphasis on food quality to make sure it speaks to the health-conscious generation,” he explains.

It was a lesson that half American, half Norwegian founder of Chilango Eric Partaker learned early. Before the concept first appeared in its current guise in 2008, Partaker called it Mucho Mas and operated the Upper Street store in Angel Islington. It was a moderate success, with sales of about £12,000 a week. But when, in 2008, he switched it to the brightly-coloured Chilango branding, adorned with cartoonish masked Mexican wrestler characters and started making more of a noise about the food’s value and healthier properties, sales shot up to more than £20,000 a week. “Only two things changed – the brand and our marketing efforts,” the former employee of internet telephone brand Skype explains. “If that doesn’t convince someone to believe in the power of branding and marketing, they must be insane.”
POPULAR PHENOMENON

And while branding undoubtedly helps, Mexican food itself seems to be a popular phenomenon at the moment. Partaker likens its potential to the stratoshpheric growth experienced by coffee chains such as Starbucks and Costa in the 1990s. “We’re right at the beginning of a boom in Mexican food,” he claims.

Peter Martin, founder of hospitality industry analysts Peach Factory, agrees: “The big growth is in the Chilango-Tortilla end of the market. The two hottest home-grown chains at the moment are probably Mexican,” he adds.

But it isn’t Mexican food per se that is the secret to its success, according to Martin. Instead, he sees what they are doing as an extension of what made Nando’s successful – simple, hot and spicy food, aimed at a metropolitan market. And the competition is going to be stiff, with American giant Chipotle parking its tanks on the home-grown chains’ lawn with a store in Charing Cross. Still, both Davies and Partaker welcome the arrival, claiming it will have an educative effect on the British public, many of whom still don’t know their tacos from their totopos.

Regardless of what style of food they are serving, though, a fast-casual chain worthy of the name needs finance – often in the form of venture capital or investment from wealthy individuals who share the enthusiasm for the concept of its founders. Otherwise, there are few chances to enter the kinds of spaces – prestigious shopping centres and city centre locations surrounded by office blocks – that make the concepts lucrative.

Stephen Wall at Pho was lucky enough to attract investment from pub entrepreneurs and regulars at his first restaurant in Clerkenwell, Tom and Ed Martin. Others, such as Tossed’s Vincent McKevitt, did their best to muddle along on their own, pushing the concept to see if it worked and paying suppliers as late as possible, until he managed to attract interest from private equity firm Beringea in April this year.

Meanwhile Barburrito, which already has private equity backing (see box on page 22), is now seeking a second round of funding of between £5m-£10m to bankroll its expansion further south.
BOLD EXPANSION

The fact that companies in this sector of the market are considering such bold expansion – Leon will have hit 10 sites by next year with new openings in Old Compton Street and Brent Cross shopping centre – shows that there are few signs of the fast-casual market slowing down any time soon.

Stephen Wall has been surprised that since he and Juliette Wall wrote the business plan for Pho six years ago, the market has not evolved faster and more direct competition has not emerged. But he adds: “All I can see is it continuing to grow and the quality of the offerings improve and increase, with more emphasis on healthy food. The UK is still in its infancy, as far as fast casual is concerned. I see the market over the next five years growing quite rapidly.” All of which means plenty more queues down the high street for the latest big thing.
TAKW-AWAYS VS EATING IN

The ratio of take-away sales to eat-in sales varies massively not just across each fast casual chain but also across their individual sites.

Barburrito’s Piccadilly Gardens site in Manchester sees 80% of customers sitting in, but its Deansgate site in the same city, is about 70% takeaway, as its office-working customer base scurry back to their desks to eat lunch.

Meanwhile, Leon co-founder Henry Dimbleby finds that his restaurants have become popular meeting places for the type of businesspeople who would rarely have considered a fast-casual outlet previously. “The recession has taken the stigma out of being frugal, or even made it a bit cool,” he says.

Pho also does take-away but is predominantly sit-in across most of its sites. Despite that, Stephen Wall sees huge potential. “We believe there are real opportunities for us to focus a little more on an operation that might allow us to push take-away and really go for it in a much more high volume manner,” he says.
INSPIRATION AND ADMIRATION

Stephen Wall: I think Henry Dimbleby is fantastic and I admire what he has achieved with Leon. Retrospectively, I also admire Wagamama – they almost single-handedly evolved the fast-casual dining sector in London in the 1990s.

Henry Dimbleby: I love Byron and I love Wahaca. They have similar customers to ours but on a different occasion. What Byron has done, which is to resolutely focus on a good burger, is great. It is so simple.

Vincent McKevitt: I like Itsu. It’s a slick operation and the quality of the sushi is good. The burrito boys are interesting too. They are quite natural and fresh and if you miss out the cheese, they are not too bad for you at all.

Morgan Davies: I have a lot of admiration for Pret. As a company they have some good values and their level of service is second to none, even though I am not a massive fan of their product. I also like the guys at Leon. They have an attractive brand and they put a lot of effort into making their stores individual.
TEN FAST-CASUAL BRANDS TO WATCH

Company Barburrito
Food syle Mexican
Number of outlets 6
Founders Morgan Davies & Paul Kilpatrick
Year founded 2005
Main investors Cenkos – rapid realisation fund

Company Byron
Food style Burgers
Number of outlets 10
Founders Tom Byng
Year founded 2007
Main investors Gondola Holdings

Company 
Chilango
Food style Mexican
Number of outlets 4
Founders Eric Partaker & Dan Houghton
Year founded 2008
Main investors Venrax /Ambient Sound Investments

Company Fine Burger Co
Food style British burgers
Number of outlets 4
Founders Robert Tame
Year founded 2003
Main investors Unknown

Company 
Leon
Food style Various fresh fast food
Number of outlets  8
Founders Henry Dimbleby & John Vincent
Year founded 2005
Main investors Active /Vivian Imerman

Company 
Pho 2005
Food style Vietnamese
Number of outlets 5
Founders Juliette & Stephen Wall
Year founded Juliette & Stephen Wall
Main investorsTom and Ed Martin

Company 
Rosa’s
Food style Thai
Number of outlets 2
Founders Alex & Saiphin Moore
Year founded 2008
Main investors Various private individuals

Company 
Tampopo Pan-Asian
Food styleVarious private individuals
Number of outlets 5
Founders Nick Jeffrey & David Fox
Year founded  1997
Main investors Various private individuals

Company 
Tortilla
Food style Mexican
Number of outlets 4
Founders Brandon Stephens
Year founded 2007
Main investors Paul Campbell (Clapham House chief executive)

Company 
Tossed
Food style Healthy eating /salads
Number of outlets 6
Founders Vincent McKevitt
Year founded 2005
Main investors Beringea


THE GROWNTH IN UK FAST-CASUAL DINING

TRAFFIC

Year to June 2009  Year to June 2010  Change
 Total OOH  12,209,360,000  11,821,970,000  -3.2%
 Fast Casual  1,473,768,600  1,543,419,600  +4.7%

SALES

Year to June 2009  Year to June 2010  Change
 Total OOH  £45,663,590,000  £44,583,990,000  -2.4%
 Fast Casual  £6,410,425,000  £6,790,315,000  +5.8%

Source: NPD Crest

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