Fast food chains are expanding rapidly in small American towns

Bennington, population 15,000, is known for its fall foliage, lush Green Mountain backdrop and laid-back Vermont vibe. There’s no major university here (Bennington College has more than 700 undergraduates and calls its namesake town its home) and the nearest interstate is 40 miles away. But none of that stopped Chipotle, long a fixture of suburbs, airports and interstates, from opening in this small Vermont town last month.

Stuart Hurd has been the city manager for 32 years. While he laments the loss of the family-run restaurants that once served busy crowds downtown, he cheers for the arrival of Chipotle.

“It’s a badge of honor; it’s good for the community,” Hurd said, adding that he will soon open a Starbucks next to Chipotle, which opened in July. The restaurants are helping fill a void in Bennington.

“Most of the old mom-and-pop restaurants are gone. They’ve gotten older. Their kids don’t want to do that kind of work,” Hurd said, noting that downtown Bennington had three good mom-and-pop restaurants. “But they’re gone, and that kind of restaurant doesn’t seem to be coming back,” he added.

The same scene repeats itself in one small town after another (which Chipotle identifies as a municipality with fewer than 20,000 residents).

Like Bennington, Somerset, Pennsylvania, population 15,000, recently welcomed its first Chipotle to the city with a ribbon-cutting, balloons and local dignitaries.

Aggressive fast-casual expansion strategy

Chipotle has been among the most aggressive of the fast casual chains in opening locations in cities that once would have housed only a Subway or a burger franchise tucked away in a gas station. But the reasons for Chipotle’s expansion into small towns have as much to do with changing food tastes as economics, experts say. Burgers and fries have long been a small-town staple, but now small-town diners are increasingly looking for what they see as healthier options.

“In general, people’s eating habits and their understanding of what’s healthy for them have evolved toward real, unprocessed foods, not fried foods,” said Chris Brandt, Chipotle’s brand manager.

Other fast-casual chains like Sweetgreen and Cava are trying to follow Chipotle’s lead, but Eric Gonzalez, a restaurant analyst at KeyBanc Capital Markets, says other chains will have a hard time replicating the small-town success.

“There are a few things that make Chipotle unique,” ​​Gonzalez said. There’s widespread acceptance and appetite for Chipotle’s cuisine; its size gives it the scale to keep prices low: The price of a meal at Chipotle is comparable to a major fast-food chain. And its “Chipotlane” (a digital pickup store format) provides another source of revenue.

“Chipotlane opens the doors to those small towns for them,” Gonzalez said. He also says that cheaper land and labor in small towns means lower expenses that often offset lower earnings than suburban counterparts.

“A brand like Cava might have a little more trouble,” Gonzalez said, since people aren’t as familiar with the Mediterranean food it sells. But Cava is trying to do what Chipotle did for food south of the border for the Mediterranean category. With more than 300 restaurants, Cava is bringing its Mediterranean menu to small towns for the same reasons Chipotle did, and he says that over time, the restaurant will gain the same acceptance for Mediterranean food as Mexican food.

“These markets have been underserved to begin with, as people are craving more interesting foods and are increasingly knowledgeable about what they eat, as well as better understanding what they are consuming and how it impacts their health,” said Brett Schulman, co-founder and CEO of Cava.

The trend has prompted Cava to locate its stores in smaller markets like Lancaster, Pa., and Lynchburg, Va. But Schulman says there’s plenty of room for Cava to grow and expand to even smaller cities in the future, adding that comparing Cava to Chipotle is flawed, pointing to the disparity in restaurant counts and years of existence. (Cava opened its first fast-casual chain in 2011, and compared to its 300 restaurants, Chipotle, founded in the 1990s, now has more than 3,500 locations.)

Meanwhile, Chipotle’s Brandt says not all small towns are the same. Whether a small town is a viable location for Chipotle depends on income and other intangible factors.

“We look for proximity to the highway and if there’s a mall in the area,” Brandt said, adding that there may be larger cities nearby, but if they don’t have a Walmart or Target to get away from the traffic, that’s not as desirable. “We like to be in a town with all the stores.” Bennington falls into that category with a Walmart Supercenter and a Home Depot, to name a few of the retail giants in town. “Small towns that have a college are also a great fit,” he added.

Brandt says Chipotle still has plenty of room to grow in small towns across the U.S. Chipotle plans to open another 3,500 locations in the next few years, a significant portion of which will be in small towns.

“We look for places where we can differentiate ourselves and we look for food deserts where we have a community that wants what we have,” he said.

The Effect of the Pandemic on Local Restaurants

Mike Esposito, co-managing partner at Franchise Equity Partners, a private investment firm that creates long-term partnerships with franchisee operators, has noticed the trend of popular fast-casual restaurants opening in small towns and says it’s due to a convergence of factors.

“The U.S. has seen a general saturation of restaurant concepts, particularly within large chains looking for incremental growth avenues,” Esposito said. But while cities and suburbs are saturated with restaurants, Covid has dealt a blow to independent restaurants and small chains that were already struggling, leaving a void for better-capitalized chains (think Chipotle) ​​to move into, while those that haven’t moved are looking favorably at small markets.

“These chains now see a ‘white space’ for development in smaller markets to fill the void left by the Covid shutdowns,” Esposito said.

Panda Express, a mall and airport mainstay, is opening stores in smaller cities, too. Last month, it opened in Auburn, Indiana, which has a population of 12,000, even though Interstate 69 runs right by the city.

“Our goal for the next few years is to grow in under-penetrated markets, many of which are small cities in the United States,” said Fabiola Del Rio, a spokeswoman for Panda Group, which owns Panda Express. The chain has about 2,500 stores in the United States.

While Cava is introducing tahini and tzatziki to small-town America, Panda Express has the advantage that people are already familiar with General Tso’s Chicken and spring rolls.

Del Rio says many of the larger urban and suburban areas have become saturated, and smaller cities allow for a different level of service. “The untapped potential in smaller cities allows us to introduce our American-Chinese comfort food to new audiences that previously didn’t have easy access to our offerings,” he said.

But smaller cities also present a different set of risks than larger cities for established brands like Panda Express. While strong brand recognition for Panda Express in metropolitan areas is a plus, he said there is a need for more community involvement in smaller cities. The chain prioritizes outreach and engagement with local chambers of commerce and philanthropic organizations. “We can interact with our guests on a more personal level, understand their preferences and tailor our community-based programs to meet their needs,” Del Rio said.

In Bennington, Hurd wonders what other big names might come next. But for now, at least, residents are enjoying their chips and guacamole. And if Cava has its way, more small-town residents will be ordering mezze salad and avocado harissa in the near future.