Lean and Mean

In the past six months, Ed Frechette has noticed a trend. “People on Wall Street are coming to Au Bon Pain for meetings and interviews,” says Frechette, senior vice president of marketing for the Boston-based chain, which has locations in New York City.

Financial executives are not the only ones looking to save money. Customers across the board are watching their wallets—yet at the same time, they don’t want to sacrifice flavor. And that is where small quick-service chains like Au Bon Pain stand to benefit in a cutthroat market.

Lean and mean, many small chains focused on managed growth and customer satisfaction long before the economy hit the skids. Being small also helps keep you close to your staff, says Reggie Orchid, chief support officer of Beaumont, Texas-based Jason’s Deli. “The closer you are to your people the closer you are to your business,” he says. “We have an obligation to our people to stay financially solvent.”

That’s not to say there’s no work to do. To stay on top, many of the top 10 chains with fewer than 300 units are upping healthy alternatives—there is practically a race to eliminate high fructose corn syrup and promote lighter fare. They’re also offering smaller, more affordable portions. (The exception to the trend is In-N-Out, which continues to stick to the tried-and-true.) Many restaurants are also focusing on customer satisfaction and improving operational efficiencies.

The chains’ ability to hold their own against the powerhouses in a thriving economy could put them in a good position to weather the storm. Here are the top 10 chains with fewer than 300 units listed by fiscal 2007’s annual sales.

*Annual sales figures are from Fiscal 2007.

1. Jason’s Deli

  • UNIT COUNTS: 2007: 180 | 2008: 204
  • ANNUAL SALES: $427 million
  • AVERAGE SALES PER UNIT: $2.7 million


In 2008, Jason’s Deli opened three Chicago locations. More are on the way. As with Houston and Dallas—successful markets for Jason’s Deli—Chicago boasts a thriving downtown and a cluster of towns on the city’s fringe. The chain also opened locations in Washington, D.C., south Florida, Phoenix, and Philadelphia. Expected revenue for fiscal 2008 is $500 million.

“We built more stores in 2008 than we ever have,” says Reggie Orchid, the brand’s chief support officer. Twenty more are expected to open in 2009.

But, if expansion is not economically feasible for franchisees, Jason’s understands. “We let our franchisees decide what’s best for the life of their business,” Orchid says.

In addition to a 4,800-square-foot prototype, Jason’s Deli introduced a newer, delivery-friendly 3,200-square-foot model.

The big news, however, is on the chain’s menu. High fructose corn syrup is gone—except in some carbonated beverages. And a yet to be named line of smaller sandwiches is rolling out this year.

“In 2009, there will be a shakeout between those claiming to offer healthy food and those who really do,” Orchid says. “There’s nothing better you can do for yourself than to get as close to the food source as possible.”

2. In-N-Out

  • UNIT COUNTS: 2007: 213 | 2008: 233
  • ANNUAL SALES: $400 million*
  • AVERAGE SALES PER UNIT: $1.92 million*


The last time Irvine, California–based In-N-Out added a new product was 1995, and that was Dr Pepper. “Our menu of burgers, fries, and drinks has remained essentially the same since our inception in 1948,” says Carl Van Fleet, vice president.

Hamburgers are made from 100 percent pure beef, ground by company butchers. Lettuce is hand-torn to remove veins. Potatoes for french fries are hand-cut in the store. The American cheese is real, and buns are made from slow-rising sponge dough. Shakes contain real ice cream.

Marketing has primarily consisted of radio and outdoor advertising. But that’s not to say the products aren’t promoted. A pop-culture icon, In-N-Out stars in the cult film The Big Lebowski. Message boards describe the food as “addictive” and “awesome.” Web sites reveal a list of the “secret” burgers customers can order. Since In-N-Out will make burgers however customers like, it’s more about the fans’ in-the-know names for the combinations than the hush-hush factor. What is closely guarded, however, are the company’s financials

 As with its products and marketing plan, the family-owned business’s growth strategy remains unchanged. “We grow slowly and will continue to do so as we move forward,” Van Fleet says. In-N-Out in 2008 opened its first Utah store in Washington City.

3. Fuddruckers

  • UNIT COUNTS: 2007: 233 | 2008: 234
  • ANNUAL SALES: $320 million
  • AVERAGE SALES PER UNIT: $1.45 million


In July 2008, visitors to Las Vegas noticed lines formed around a building in Las Vegas. The main attraction wasn’t Elvis. It was the opening of Fuddruckers’s first Las Vegas store, a 4,200-square-foot end cap. A second store in the city opened in November in the Orleans Casino. The chain also received notice when it opened stores in the Houston airport, in downtown Savannah, and in Orlando.

Perhaps that makes up for some negative press resulting from the 2007 closings of four Columbus, Ohio­–area restaurants—the second time in two decades that Fuddruckers has bolted central Ohio—and the closings of two other Ohio restaurants.

Fuddruckers, like many chains last year introduced health-oriented items, including fresh-baked cookies with zero trans fat and its Lighter Options Menu, which debuted in early 2008. The menu features salads, bunless burgers, and five core patties: ostrich, buffalo, turkey, veggie, and salmon.

Fuddruckers also lightened up its self-service topping bar with such health-friendly selections as seasonal fruit salad; low-fat ranch and Italian dressings; and Alpine Lace low-sodium, low-fat American cheese. While the healthy items have been popular, the standard burger still reigns.

The chain, which has taken it on the chin for not releasing its products' nutritional information, will provide info on the Lighter Options Menu upon request. Fuddruckers maintains that its policy is not unusual in the quick-serve industry.


4. Baja Fresh Mexican Grill

  • UNIT COUNTS: 2007: 291 | 2008: 291
  • ANNUAL SALES: $315 million
  • AVERAGE SALES PER UNIT: $1.08 million


Like In-N-Out, Baja Fresh Mexican Grill is close-mouthed about its financials, its product development, and its strategy. In part that could come from its history. Founded in 1990, Baja Fresh was purchased in 2002 by Wendy’s for $275 million. In wake of slipping sales, Wendy’s decided to stick to the burger marketplace and sold Baja Fresh in 2006 for $31 million, a loss that raised analysts’ eyebrows.

New owner Fresh Enterprises—parent company of La Salsa Mexican Grill and The Sweet Factory—has been busy rebuilding the Baja Fresh brand.

Last year was a busy one for the Thousand Oaks, California–based quick-casual Mexican grill. It opened a new concept, Baja Fresh Express at LAX and on the campus of the University of Southern California. The new concept handles orders from start to finish in less than four minutes.

Fresh Enterprises also announced plans for accelerated franchised expansion for all three of its concepts in Atlanta. New York City and Boston are also on the target list.

Last year Baja Fresh also announced an agreement with Bluesun Corp., an international consumer products brokerage firm specializing in selling food and nonfood products to retailers. Initial product offerings are expected to be a Baja Fresh Salsa line.

The initiatives could indicate things are on the upswing for the 18-year-old chain.

5. McAlister’s Deli

  • UNIT COUNTS: 2007: 247 | 2008: 285
  • ANNUAL SALES: $307 million
  • AVERAGE SALES PER UNIT: $1.4 million


Opening nearly 40 restaurants in a roller-coaster economy is no easy feat. But fast growth has been par for the course for McAlister’s Deli since Phil Friedman and Michael Stack bought the Ridgeland, Mississippi–based company in 1999. “I always want to do more,” says Friedman, McAlister’s president, chairman, and CEO.

In preparation for hitting the 300-store mark, McAlister’s hired Ken Green, a Friendly’s Restaurant alum, to serve as senior vice president of operations. McAlister’s will continue to recruit experienced staff who’ve been through growth spurts at other concepts, Friedman says. Marketing and human resources professionals are targets.

Product development will continue into 2009, with new offerings such as paninis and the Café menu, which lets customers choose any two items from the list that includes the soup of the day, a café sandwich, and side salads. McAlister’s suggested price point for the combo is $5.99—“The first time we’ve merchandised a price point,” Friedman says—but franchisees can opt for a higher cost depending on their location.

The chain has worked on concept enhancement with the addition of plates and silverware, which creates a more attractive presentation for salads.

 McAlister's also improved kitchen efficiency, resulting in the need for less space. Instead of the traditional 3,600 to 4,000 square feet, the preferred location dropped to 2,800 to 3,000 square feet, which helps offset increased construction costs.

One secret to success in this economy, Friedman says, is to keep customer price points reasonable and avoid recouping vendor price increases all at once.

6. Pei Wei Asian Diner

  • UNIT COUNTS: 2007: 144 | 2008: 159
  • ANNUAL SALES: $242 million
  • AVERAGE SALES PER UNIT: $1.7 million*


Silverware, heavy-gauge napkins, and china distinguish Pei Wei from many competitors. Yet the concept, owned by Scottsdale, Arizona–based P.F. Chang’s, seeks to stand out even more.

The chain in 2007 and 2008 engaged in intense market research. “We want to do a better job of selecting our markets,” says COO K.C. Moylan, who took the job in 2007.

Menu offerings have been reduced to focus on core items with a high volume. “It makes it easy for us to execute, and it’s what the customer really likes,” Moylan says. “We also want to do great features.”

To that end, Pei Wei tested between 10 and 20 new selections within the last 10 months. Dishes were tested in three to four markets for up to 35 days. Two might debut in 2009.

Because Pei Wei is 100 percent owned by a well-capitalized company, franchisee financing has not been a hindrance to growth, Moylan says.

The strategy is to hit a market hard with three or four stores and expand with up to eight. The chain plans to open 10 stores in 2009, down from the 35 it opened in 2007. “We’re cautiously optimistic,” Moylan says of the economy.

7. Taco Cabana

  • UNIT COUNTS: 2007: 147 | 2008: 153
  • ANNUAL SALES: $239.1 million
  • AVERAGE SALES PER UNIT: $1.656 million


It is easy to tell that Taco Cabana was born in San Antonio, Texas. In 2008, 142 of the chain’s 147 restaurants operated in Texas, primarily in Houston, where more than 40 Taco Cabana restaurants were temporarily closed after Hurricane Ike swept through the area.

Despite its heavy presence, Texas is far from saturated, says Alan Vituli, chairman and CEO of Taco Cabana’s owner, Carrols Restaurant Group in Syracuse, New York, which also owns Pollo Tropical and operates several Burger Kings.

The economy, however, is having its affect on development. Vituli in a press release announced plans to limit discretionary capital spending in 2009, anticipating total capital expenditures across the company at $20 million to $30 million with new unit growth reduced from 2008.

Any additions will undoubtedly follow the existing model, which is 3,200 square feet and freestanding with an outdoor patio.


8. Au Bon Pain

  • UNIT COUNTS: 2007: 226 | 2008: 230
  • ANNUAL SALES: $217 million
  • AVERAGE SALES PER UNIT: $1.86 million


Au Bon Pain began selling croissants in Faneuil Hall Marketplace in 1978, but the Boston-based chain has moved far beyond France’s culinary borders.

In March 2008, Au Bon Pain introduced Portions, a line of 14 pre-made items with 200 calories or less, including cheddar, fruit, and crackers; hummus and cucumber; and a chicken pesto salad. “They skew heavily toward women, but they comprise up to 2 percent of our sales,” says Ed Frechette, vice president of marketing.

The chain experienced a leveraged buyout in February 2008. The new majority holder is LNK Partners, a White Plains, New York, private equity firm, which invested more than $100 million of fresh equity. “We have the same leadership that we’ve had for the past three years,” Frechette says. “We’re not going anywhere.”

Au Bon Pain in 2008 expanded primarily in existing markets, but also opened stores in Kuwait and Dubai. The chain plans about 10 new company-owned stores in 2009 and 10 franchised restaurants.

“We’re staying close to home and trying to control costs as much as we can,” says Frechette, citing long-term contract negotiations with vendors and vendor consolidation.

9. Taco Bueno

  • UNIT COUNTS: 2007: 187 | 2008: 188
  • ANNUAL SALES: $196.2 million
  • AVERAGE SALES PER UNIT: $1.1 million


Last year was red hot for Taco Bueno, thanks to its expanded menu of flame-grilled selections. Customers can now request flame-grilled steak or chicken when ordering fajita tacos, burritos, and Gourmet Bowls. Not one to sit on the sidelines, Taco Bueno jumped on the eat-light wagon with new low-fat sides: black beans and cilantro-lime rice.

Taco Bueno might have turned 40 in 2007, but it’s hardly old hat. Last year, the chain teamed with Cellfire Inc. to offer mobile discount offers. There’s no paper and no clipping. Customers just subscribe to Cellfire’s mobile coupon service at Cellfire.com or text “bueno” to 22888.

Taco Bueno, owned since 2005 by Palladium Equity Partners, a private-equity firm based in New York, also added MasterCard PayPass, contactless payments, at 161 corporate stores. To use the service, customers tap the card on a PayPass reader to make a purchase. There’s no need to hand the card to the cashier.

Development agreements for Taco Bueno require five or more restaurants. As of fall 2008, Taco Bueno sold markets in its targeted areas. The company is now focusing on developing new markets for 2009.

10. Eat’n Park

  • UNIT COUNTS: 2007: 76 | 2008: 76
  • ANNUAL SALES: $185 million
  • AVERAGE SALES PER UNIT: $2.43 million


Eat’n Park Restaurants, founded in 1949 as a family carhop, aims to provide high quality food for “an unexpectedly great value,” says Kevin O’Connell, senior vice president of marketing. Beef is Black Angus and most of the buns and breads are baked fresh in the restaurant.

Based in Homestead, Pennsylvania, Eat’n Park’s locations are within about a 200-mile radius that includes parts of West Virginia and Ohio. Despite its regional appeal, Eat’n Park won two awards at the 2008 National Hamburger Festival at Akron, Ohio, for its American Grill Burger and its Black Angus Superburger. A television ad campaign touting the awards followed.

Breakfast in 2008 experienced a strong surge, although O’Connell declined to give a growth statistic. The back of the menu now features healthy dishes that are low in calories, fat, and cholesterol. There are even gluten-free selections.

A remodeling effort has resulted in lower lighting, richer colors, and a sectioned dining room. The restaurant has also installed a raised counter with high stools. “It’s bringing back the old but in a new way,” O’Connell says. A retail section gives customers a chance to buy T-shirts and mugs with the signature Smiley character, based on its Smiley cookie. Tested in 2008, the retail area will roll out in 2009 in select stores—just in time for the 60th anniversary.

Apparently, Eat’n Park is on the right path. The chain hired Kansas City–based Service Management Group to measure guest satisfaction. “For the last two years in a row, we’ve seen consistent growth in satisfaction scores,” O’Connell says.

Fast Casual, Finance, Franchising, Growth, Story, Au Bon Pain, Baja Fresh, Eat 'n Park, Fuddruckers, In-N-Out Burger, Jason's Deli, McAlister's Deli, Pei Wei, Taco Bueno, Taco Cabana