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Steal This Idea: Lessons from a failed fast-casual expansion

Could what happened in D.C. happen in your next market?
burrito

Washington, D.C. seemed like the ideal place for Boston-based burrito chain Boloco to expand. When the fast casual initially looked for a new market outside of the Boston area in 2010, D.C. was performing very well, says Boloco CEO Patrick Renna. Based on its resistance to unemployment, “it was almost recession proof,” he says. But going in two years later turned out to be a mistake. Boloco closed its two Washington, D.C. units at the end of 2014, showing that while a market might look good, there are no guarantees, even for proven concepts.

Renna attributes Boloco’s flop to three factors: low brand awareness, operational issues and competition. Here are some takeaways for other growth-minded restaurateurs:

1. A local following doesn’t always compute to national appeal

“We had great brand awareness in the Northeast that was built over many years,” says Renna. “But we learned you have to focus maniacally on getting your brand message out in a new market, because people don’t know you if you’re regional.” Typically, the more units open, the more brand awareness builds, says Renna, which is why Boloco intended to open five to six stores in D.C. But opening only two, which were six miles apart, hurt the brand’s recognition. “They were almost acting as independents,” he says.

2. Flawless execution is even more imperative in a new market

Renna found that consumers are willing to take a chance—that they like trying something new—but they come in with a critical eye. “Self-inflicted wounds hurt,” he says, noting that Boloco’s D.C. units were not delivering the same experience as other stores, citing slow service and subpar food. “It will matter immediately, and if you don’t [deliver operationally], it will take a long time to recover.”

3. There can be too much of a good thing

Scott Dahnke, managing partner at private-equity firm Catterton, told The Washington Post that D.C. has more fast casuals per capita than any city other than Las Vegas. There were 10 that quickly popped up within two blocks of one of Boloco’s D.C. spots, all of which were fighting for a daytime population that Renna says wasn’t growing. “We faced major saturation and competition of fast casuals,” he says. Boloco wasn’t the only  chain to run into trouble. Denver-based Smashburger and Freshii, out of Chicago, both closed their D.C. units in recent months. “As an area adds more restaurant seats, your share of the pie begins dwindling,” Renna says.

So, is the “Boloco goes to Washington” example a microcosm of the rest of the country, forecasting a fast-casual market without room for continued growth? Renna says no. Despite Boloco’s failed expansion, he believes fast casual still is the place for operators to invest. “It will continue to grow and prosper,” he says. “But concepts need to be weary of their own ability to be in a very saturated market.” 

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