As far as big full-service restaurant chains go, First Watch is in a league of its own.
The leader in what it calls the daytime dining segment, its restaurants are open just 7.5 hours a day, serving breakfast and lunch made from scratch from 7 a.m. to 2:30 p.m.
Although it is frequently lumped in with family-dining chains like Denny’s and IHOP, First Watch rejects that label, priding itself on its fresh ingredients and the absence of heat lamps, deep fryers or microwaves in its restaurants. As CEO Chris Tomasso says, you won’t find “meatloaf and carpet” at First Watch.
The chain is not exactly alone in the growing breakfast-and-lunch segment. Other brands with similar business models, including Snooze, Another Broken Egg Cafe and Famous Toastery, have proliferated in recent years. But First Watch is by far the largest, with 435 restaurants in 28 states and counting.
Its unique positioning paired with its scale have helped make it one of the fastest-growing restaurant chains in the country. First Watch’s total sales increased by 76% last year, according to Technomic, the 15th-biggest leap of any chain and an impressive jump for a concept of its size.
“We’re kind of in a class unto ourselves and in a segment that doesn’t fit neatly into a segment,” Tomasso said. “The bottom line is, nobody’s doing what we’re doing.”
Being on an island has also allowed First Watch to march to the beat of its own drum. While chains like Olive Garden and Applebee’s trimmed back their menus during the pandemic, First Watch kept its full bill of fare. As just about every restaurant raised prices last year, First Watch stood pat—though it did institute a 3.9% hike in January. Ghost kitchens, drive-thrus and other of-the-moment innovations are not part of its current plans.
“We get asked a lot about things that people think are sexy like ghost kitchens and these types of things,” Tomasso said. “I’m not saying we won’t get there, but man, we’ve got so much unmet demand that we’ve got to figure out how to fill it.”
That demand has been evident in the chain’s recent earnings results, which showed traffic increases of 5% in the third quarter and 6% in the fourth compared to 2019, among the best figures in its nearly 40-year history. Executives indicated that traffic would have been even better had its restaurants been able to accommodate it.
One way it’s hoping to do that is by opening more restaurants—a lot more. It opened 31 new stores last year and could open up to 48 this year, mostly company-owned. It has said it believes there’s room for as many as 2,200 First Watches across the U.S.
The newly opened restaurants show signs of the chain’s evolution over the past two years. Many feature second make-lines and dedicated pickup areas for to-go orders, which now make up about 20% of its sales. They also sport large outdoor patios, which add capacity and curb appeal. Even restaurants in places where it gets cold in the winter, like Chicago, have climatized outdoor seating.
“It does increase our capacity and, you know, it’s not space you pay rent on,” Tomasso said.
Meanwhile, the chain has added fresh juice and alcohol to its menu, which has helped drive up average check.
First Watch’s success has come amid a difficult restaurant operating environment that has included staffing challenges and a series of COVID-19 spikes. These days, skyrocketing costs are particularly top of mind for both operators and investors, many of whom are concerned consumers could start shying away from higher menu prices. First Watch has been more conservative than most when it comes to pricing, and believes it has room to charge more if needed.
“Sooner or later there are points where the consumer pushes back,” Tomasso said. “We don’t think we’re anywhere near that.
“Even with 3.9%, that’s still maybe a half or a third of what others have already taken, and they’ve talked about taking even more.”
If there’s one thing that bothers Tomasso these days, it’s that First Watch hasn’t gotten enough credit for being what he views as a “shooting star” in the industry.
“In terms of our trajectory and really our trend line, if you cut [the pandemic] out, it’s just a continuation of what we’ve been doing for years,” he said.
It’s a trajectory he expects First Watch to uphold this year and beyond. Through the first two parts of the current quarter, the chain’s same-store sales were up 29%, he said.
“We know we’re in a low-awareness segment and maybe even an underappreciated segment,” he said, but “we’re fighting above our weight class.”