It takes its name from a city in California's wine country and started in Florida, but fledgling fast-casual Calistoga Bakery Café is heading for the Bluegrass State.
The chain, a bakery-café concept with two restaurants in Naples and one in Fort Meyers, will open its first outlet outside of Florida, in Lexington, Kentucky, on April 28.
"This [new location] will give us a great opportunity to do more experimentation," says President and COO Michael Cortino. "There are tremendous opportunities for growth."
Moving from the tourist-heavy markets of southwest Florida to a city with two universities in Kentucky might seem like a strange jump, but there is a reason for this positioning: John Schnatter, founder, chairman, and former CEO of Papa John's Pizza (NASDAQ:PZZA), based in Louisville, is a partner in the concept, along with southwest Florida real estate developer Mark Bates, who started the chain three years ago. Schnatter, Cortino says, came across one of the Naples restaurants while vacationing in the area and jumped on board in 2006. Their aim now is to move the chain beyond the seasonal Florida markets to test its viability year-round.
"Our goal right now is to prove the concept," Cortino says. "We know it works well in southwest Florida. We want to take it out of that market and actually prove it."
He says the company liked the demographics in both Lexington and Louisville, but a location in Lexington happened to come available first.
The Lexington restaurant is located in an area with retail shopping traffic off an interstate highway. The freestanding store is 5,000 square feet, though Cortino says additional outlets will be smaller end-cap units of around 3,700 square feet.
In addition to the Lexington location, Cortino says the company is also looking at adding four or five more restaurants outside of Florida, including more locations in Lexington and some in Louisvillethough he emphasized that no concrete plans have been set.
"No location is better than a bad location, and we want to find the right one," he says. "We have no formal targets as of yet. We're still learning a lot about the business and refining the brand and the unit economics."
Soups, salads, and sandwiches anchor Calistoga's menu, but the restaurants also include a bakery counter and espresso bar for made-to-order specialty coffee drinks. According to the chain's web site, smoothies were recently added, too.
In existing locations, Cortino says lunch has been the strongest daypart, but breakfast and dinner offerings are also growing. The average check runs somewhere between $10 and $13.
In many ways, Calistoga is similar to another fast-casual bakery café concept, Panera Bread. In its southwest Florida markets, Calistoga locations already compete with six nearby Panera restaurants, and in Lexington it will go head-to-head with five Panera shops in the city and surrounding areas.
But with consumers cutting back on discretionary spending, will there be room for two similar concepts in the same town?
"It's a tough time for eating out," says Harry Balzer, vice president at consumer research company NPD Group. "It's not a growing market. Any growth will be required to take from somebody else."
But fast-casual seems to be in a good position to weather the storm.
"The demand for foodservice will not go away," Balzer says. "And the climate for fast-casual is not in a bad position because the real problem is in casual dining."
Balzer explains that while there has been a lot of talk about consumers "trading down" to fast food, many casual dining customers are actually trading down to fast-casual. While the segment accounts for just about 2 percent of all meals eaten away from home, fast-casuals are responsible for about half of all growth experienced in the fast food segment, he says.
"[The fast-casual segment] is not too crowded," Balzer says. "It's not unlike coffee; it's a very big market."
David Morris, research director of food and beverages for Mintel, agrees. He says the segment has a few things going for it that will give restaurants an edge during the current economic slowdown. First, there's the health perception attached to it.
"Fast-casual is perceived as a healthier alternative to both fast food and casual dining," he says.
Fast-casual restaurants also draw from a wealthier consumer base that is theoretically in a better position to continue spending during a possible recession. Of households earning $100,000 or more, 38 percent say they've eaten at a fast-casual at least once within the past week, he says.
"Higher-income consumers are going to be more able to absorb a fast-casual meal, and if there are cuts to be made, they'd be more likely to be made at the low-income spectrum," he says. "That's a bit of a cushion that fast-casual can count on, though that's not to say they're immune."
Morris cites favorable same-store comparable sales at Panera Bread as a good thing for Calistoga.
"I think you can point to that to say maybe there's some ammunition that [Calistoga] can draw from," he says.