Why fast-casual restaurants are closing in Washington, D.C.

While D.C. has been home to fast-casual winners, recent closings indicate a decline

The Washington, D.C. area is known for attracting fast-casual restaurants of all shapes, sizes, and pedigrees. Fast-casual restaurants offer quick service and offerings that are more upscale than what fast food eateries have been known to sell at, and pricing that’s more affordable than, or comparable to, casual-dining concepts. Many of D.C.’s fast-casual chains have been successful, for sure.

Chiko, a top fast-casual restaurant in the area, offering Chinese-Korean-fusion cuisine and a RAMMYS-award winner for Best New Restaurant in 2018, is opening a second location in Dupont Circle, after the restaurant opened its first West Coast location in November. It’s also an example of what many would call a polished or “fine-casual” restaurant, and an example of a top trend for 2019.

Beefsteak, a fast-casual chain from Jose Andrés, serving mostly veggie-centric, plant-based meal options, has been growing and now has four units, including three in the D.C. area. Cava, a well-known Greek fast-casual that was started just north of D.C., in Rockville, by three childhood friends who grew up together in Montgomery County, just finalized is acquisition of rival Zoe’s Kitchen, a much larger, public, Mediterranean-style restaurant chain. The all-cash offer was finalized in November. Sweetgreen, a healthy-eating chain that features features protein, grain, and veggie-centric bowls as a centerpiece of its menu, just raised $200M from Fidelity Investments to invest in digital and community initiatives, improve supply chain efforts, including blockchain technology, and expand its menu.

But there are several fast-casual chains that have struggled, or not found their footing in the D.C. market. One of the latest examples is Honeygrow, which according to Popville, will now be closing its Chinatown location in D.C., and was reported to be closing all but one Metro-Chicago restaurant this month after having expanded to the Windy City last year.

TaKorean closed its location on U Street in October, reported Washington City Paper, but still has D.C.-area restaurants operating in Metro Center, Navy Yard and Union Market. This fast-casual concept offers bowls and burritos that feature Korean-style preparations of meat and slaws. Buredo, a fast-casual chain serving football-sized sushi in a burrito-style format, has only one location left, according to recent reports. According to WTOP, the owner spent two years with a consultant on the concept. However, less quickly, Buredo has opened and closed two locations in Northwest D.C.

Buredo has closed all but one location in DC
Buredo closed all but one Washington, D.C. location.

Better-burger chain Smashburger closed locations in Dupont Circle, Bethesda, Falls Church, and also in Downtown Crown, an upscale mixed-used development in Gaithersburg, MD. north of the Shady Grove Metro Station. A hush-hush, experimental Italian concept from the company behind Fazoli’s abruptly closed at Canton Crossing in Maryland and at Downtown Crown, just months after they had opened.

And many were shocked to hear of the closing of all 17 company-owned locations of Taylor Gourmet in the fall. In the spirit of the holidays, Cava’s management team stepped in to hire many of the displaced Taylor Gourmet workers. All that remains, according to Restaurant Business, is one licensed airport location at Reagan National Airport (DCA), its assets and brand names and trademarks, which a founder and another fast-casual chain, Cosi, with its own history of financial setbacks, were reported to be bidding on.

After Panera Bread’s acquisition of once-sister-company, Au Bon Pain, nine stores were slated to be closed based on leases being marketed around the D.C. area, according to Washington Business Journal. An additional set of restaurants not on that list, including those on North Capitol Street and Connecticut Avenue near Dupont Circle, have closed, bringing the total number of potential closings to 12 or 13. The original nine stores reported to have imminent closings, as per the Journal are as follows: the Au Bon Pain inside the Courtyard by Marriott at the NoMa/Gallaudet Metro; 601 Indiana Ave. Northwest; 1801 L Street Northwest; 1401 L Street Northwest, the Warner Building at 1299 Pennsylvania Avenue Northwest; 801 17th Street Northwest 1001 Pennsylvania Ave. Northwest, 1101 Vermont Avenue Northwest; and 700 13th Street Northwest.

Au Bon Pain may close one-third of its stores in Washington, D.C.

Retro-style Mellow Mushroom closed its Rockville location in the Town Square in October, following closings by other casual-dining and fine-dining restaurants there. Bethesda Magazine notes that the chain has more than 150 locations otherwise. For some fast-casual restaurants, as with many other restaurant service styles, the biggest impediment is a lack of cash flow due to slow sales. A projected shortfall in cash flow can lead to falling behind on rent and other expenses needed to grow the business. This can lead to a spiraling effect that drains resources from additional parts of the business, including marketing, staffing, and rent payments.

Obstacles to sustain growth

Lack of marketing, poor or obscure location, slow sales, and high rents are all potential impediments to having a successful restaurant operate in the D.C. market. Many newer fast-casual restaurants face an uphill battle in making a name for themselves and having brand recognition in a city with so many dining options. Larger fast-casual fan favorites attracting daily business from many in the area, including Panera Bread, Cava, and Sweetgreen, which have significant capital to expand and large budgets to advertise and conduct digital marketing programs.

For newcomers, the glorious press write-up that is featured in one or two papers is not enough for sustained engagement of customers. Most concepts lack enough inertia and momentum that a comprehensive marketing strategy and program can bring, with much-needed elements including loyalty programs, email marketing, recurring social media engagement, marketing of takeout & delivery options, and mobile app engagement.

At Rockville Town Square, marketing may not be the biggest source of issues. In fact, restaurateurs there have insisted they receive free marketing consulting services through their lease with Federal Realty, the Rockville Town Square commercial landlord. Some critics have pointed to the development’s location—two blocks removed from the Metro Station, and across a major thoroughfare, Rockville Pike, and also that parking is not completely free as it is in other Montgomery County live-work-play developments.

At the gathering of hundreds at a local town hall meeting, parking was cited as a major obstacle to attracting regular business, according to Bethesda Magazine. Attendees also blamed Federal Realty for not dedicating enough time and resources to the development, now that it is focused on its more successful Pike & Rose development in North Bethesda. Competition is a factor. If a landlord keeps signing new restaurant tenants, than the existing base of restaurants may suffer adverse impacts to their own sales.

In Metro D.C.—particularly in high-growth sections of the city, and attractive neighborhoods around it, a lack of cash flow (due to a drop in sales) can be a big impediment to sustaining temporary business interruptions, including construction work around a restaurant, office building renovations, and the repair of potholes and road work outside an eatery. The foot traffic of a big city is great until a restaurant owner realizes it has been one of the few main sources of business to his/her restaurant. High rents can be another big challenge for restaurateurs. It’s important to have realistic projections and understand how the business can pay for specified rent amounts, even when sales take unexpected downturns.

[See related story: How to negotiate a lease.]

Upscale/3.0 fast casual: Are new, higher expectations of the fast-casual restaurant a new challenge?

A trends report by foodservice consultancy, Baum + Whiteman, might have additional answers to what is plaguing fast-casuals in D.C. and beyond. The report cites pricy fast-casual restaurants as a top trend—one in which dinner can easily range between $50 and $100 for two people. Is the typical fast-casual eatery too middle-of-the-road these days? The report says, “What you get: A chef actually cooking top-notch products; often a bar with signature cocktails; knowledgeable servers at the counter; probably actual china; a strong personality that doesn’t reek of design-a-restaurant kit … and adventurous ingredients that have trickled down from fine-dining establishments.”

Upscale (“polished”) fast-casual restaurants that are being created today offer a more chef-driven experience and are ignoring price barriers. Baum + Whiteman mentions the Chiko concept as an example of an upscale, fast-casual eatery. This phenomenon is not only taking place here in D.C., but also in other parts of the country. Baum + Whiteman’s report highlights AlaMar Kitchen & Bar in Oakland, serving up Cajun-style dishes, and Kish-Kash, a posh, designer-styled fast-casual in New York’s West Village, which offers Mediterranean-style offerings in a quick-service setting.

These fast casuals are exploring the economics of a higher average check and a reconfigured space, together with design elements and menu offerings that include alcohol concepts that use a bar to increase check averages, or in the case of Chiko, a kitchen counter space that offers a tasting menu, along with monthly special events that have brought tastings and bites from popular and award-winning chefs. Recent visits include the likes of Gerald Addison and Chris Morgan, from Compass Rose and Maydan, and Jamie Bissonnette from Toro Boston, Coppa, and Toro NYC.

Another upside to the 3.0 movement, many of these upscale, chef-driven restaurants are designed for brisk takeout business, which Baum + Whiteman says can be another financial gain. Restaurant entrepreneurs like Chiko are inventive. As an example, according to a December email promotion, Chiko was offering a New Year’s Eve takeout package for two for $55.

Baum + Whiteman suggests that more restaurateurs and chefs will flock to this model, particularly as rents continue to increase and today’s younger consumers cling to a speedy, no-frills approach to excellent food experiences. The typical fast-casual that was once pushing the envelope on bringing global cuisine to the masses at affordable prices is possibly being pushed aside to usher in a new wave of chef-driven fast-casuals that raise the bar on average spend, space allocation, and culinary excellence.

Takeaways

There is no easy answer to why so many fast-casual restaurants are closing, but these culprits are surely part of the equation:

  • lack of a robust, sustained marketing program
  • little effort on customer retention
  • high rents and few cash reserves
  • new breeds of fast casuals (3.0) raising the bar

And restaurant closings are certainly at play: not enough sales due to a lack of sustained marketing (read: PR is not the same as a marketing program), lack of brand visibility and fewer recurring customers, in addition to low profitability. Rent costs and unreasonable expectations of sales volume can also bring a quick end to even the most hopeful of concepts and the outposts of even the largest of chains.

Some of the restaurants that have been closing focus on one item or one particular international dish imported to the city or fused with American cuisine. Some call these “one-item wonders.” It’s long been believed that one-item concepts are at a disadvantage, particularly when that dish doesn’t translate universally and can’t be customized. Take the Buredo concept. Is it as sustainable as the Meatball Shop? According to a article on food trends in Eatery Pulse Streem, Suzy Badaracco, a well-known culinary forensic trendologist, discusses the potential pitfalls of one-item concepts.

The fast-casual of yesterday might be succumbing to the perception of now being “ordinary.” With Millennials and Gen Z spending much more money on food that’s not cooked in the home, but also valuing the convenience of takeout and delivery, eateries that depend on in-restaurant traffic need to have an all-star game plan to compete with upscale, chef-driven fast-casual restaurants that are designed to bring speedy service and chef designed menus to foodies.

In urban food destinations like Metro-D.C., where we have large pockets of geography with sizable, disposable incomes, fast-casual 3.0 may be ushering in a new generation of fast-casuals into the city. And there’s only so much rent space to be had. Whether it’s missteping on the basics of running a restaurant business, or the possibility of becoming less relevant to younger consumers, fast casuals in the District face challenges that are poignant and critical, but that are hardly impossible to overcome.

Author credit: Rick Zambrano

Rick Zambrano has nearly two decades in food businesses, and has experiences in menu analysis, menu rollout support, consulting, financial analysis, content marketing and research. As a thought leader specialized in the areas of menu analysis and restaurant trends, his insights appear in research reports, foodservice magazines and business periodicals. He is also the editor of The Swizzle Chill Channel. Zambrano can be seen around D.C. scoping out new stories and supporting consulting clients.

Photo credit: Taylor Gourmet (featured), Buredo (inline, top), Au Bon Pain (inline, bottom)

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Disclosure: Eatery Pulse Media operates a restaurant consulting brand and has marketing consulting partners across the DMV region.

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