Big restaurant chains are quickly expanding into small towns across America.

• Rural America is attracting fast-casual restaurant chains like Chipotle, Cava, and Panda Express, as small-town residents crave new food options.
• Independent diners were severely impacted by Covid, creating an opportunity for national operators to establish a presence in towns where previously only a Subway or a burger franchise inside a gas station was available.
• Cheaper costs help the corporations to offset lower sales.

Despite being a small town with a population of 15,000, known for its fall foliage, lush Green Mountain backdrop, and laid-back Vermont vibe, Chipotle, a popular fast-food chain, recently opened its doors in Bennington last month.

For 32 years, Stuart Hurd has been the town manager. Although he mourns the demise of the family-owned restaurants that attracted large crowds downtown, he welcomes the arrival of Chipotle.

Hurd stated that having a Starbucks open next to Chipotle, which opened in July, is a feather in our cap and beneficial for the community as it helps fill a void in Bennington.

Family restaurants that were once popular in downtown Bennington have disappeared. They have aged out, and their children are not interested in continuing the family business.

In small towns with populations under 20,000 residents, the same scene is being repeated over and over again, as identified by Chipotle.

The first Chipotle restaurant opened in Bennington, Somerset, Pennsylvania, with a ribbon cutting, balloons, and local dignitaries present.

Aggressive fast-casual expansion strategy

Chipotle has been one of the most aggressive "fast casual" chains in expanding into small towns, which were previously home to only a Subway or a burger franchise inside a gas station. However, experts say that Chipotle's small-town expansion is driven by changing food tastes as well as economics. While burgers and fries have traditionally been staples in small towns, small-town diners are now increasingly seeking healthier options.

Chris Brandt, the chief brand officer of Chipotle, stated that people's eating habits and knowledge of what is beneficial to them have shifted towards consuming authentic, unprocessed foods rather than fried items.

Eric Gonzalez, a restaurants analyst at KeyBanc Capital Markets, believes that other fast-casual chains, such as Sweetgreen and Cava, will struggle to replicate the success of Chipotle in small towns.

Chipotle's unique features include its widespread acceptance, affordable prices, and "Chipotlane" digital order pickup store format, which generates additional revenue.

Gonzalez stated that the Chipotlane makes small towns more accessible and affordable for them, with lower expenses due to cheaper land and labor, which often offsets the potential for lesser earnings compared to suburban counterparts.

Cava, a brand selling Mediterranean-style fare, may face challenges in gaining recognition among customers due to their unfamiliarity with this type of cuisine. However, Cava aims to replicate Chipotle's success in popularizing south-of-the-border food for the Mediterranean category. With over 300 restaurants, Cava is bringing its Mediterranean menu to small towns for the same reasons as Chipotle, and the company believes that with time, it will achieve the same acceptance for Mediterranean cuisine as Mexican.

Cava's co-founder and CEO, Brett Schulman, stated that these markets were initially underserved because people were increasingly seeking more interesting food and were becoming more knowledgeable about their dietary choices and the impact of their consumption on their health.

Cava has opened its stores in smaller markets like Lancaster, Pennsylvania, and Lynchburg, Virginia, in response to the trend. However, Schulman believes that there is still room for Cava to grow and expand into even smaller towns in the future. He also pointed out that comparing Cava to Chipotle is not entirely accurate, as Cava opened its first fast-casual chain in 2011, while Chipotle was founded in the 1990s and now has over 3,500 locations.

Brandt from Chipotle states that not all small towns are suitable for the company's operations, as it depends on factors such as income and other intangibles.

Brandt stated that they search for proximity to the interstate and if the town is a hub of commerce in the area. He mentioned that there may be larger towns nearby, but if they do not have a Walmart or a Target to draw traffic, it is not as desirable. Bennington, with its Walmart Supercenter and Home Depot, among other retail giants, fits this criteria perfectly. Additionally, Brandt noted that small towns with colleges are also a great fit.

Chipotle has the potential to expand significantly in small towns across the U.S., with plans to open 3,500 more stores in the coming years, including a substantial number in small towns.

He stated that they search for locations where they can stand out and for food deserts where there is a community that desires what they offer.

The pandemic effect on local restaurants

Franchise Equity Partners co-managing partner Mike Esposito has observed the increasing presence of popular fast-casual restaurants in small towns and attributes this trend to a combination of factors.

According to Esposito, the U.S. has seen a general saturation of restaurant concepts, particularly among large chains seeking new growth opportunities. However, Covid has negatively impacted independent restaurants and small chains, leaving a gap for better-funded chains like Chipotle to take advantage of. On the other hand, restaurants that have not yet moved in are seeing small markets as more favorable.

Esposito stated that these chains are now utilizing 'whitespace' for development in smaller markets to fill the void left by Covid closures.

Panda Express, a popular restaurant chain commonly found in malls and airports, is expanding to smaller cities as well. Recently, it opened its doors in Auburn, Indiana, a town with a population of 12,000, despite being situated near Interstate 69.

Panda Group, which owns Panda Express, plans to concentrate on expanding in underserved markets, including small towns across the U.S., for the next few years, as stated by Fabiola Del Rio, a spokesperson for the company. The chain currently has around 2,500 outlets in the U.S.

Panda Express has an advantage over Cava in introducing small-town America to General Tso's Chicken and egg rolls, as people are already generally familiar with these dishes.

"Smaller towns offer untapped potential for American Chinese comfort food, allowing us to reach new audiences who may not have had easy access to our offerings before," Del Rio said.

Rewritten: While Panda Express has strong brand recognition in metropolitan areas, the chain recognizes the need for increased community engagement in smaller towns. To achieve this, Panda Express prioritizes outreach and engagement with local chambers of commerce and philanthropic organizations. By engaging with guests on a more personal level, understanding their preferences, and tailoring community-based programs to meet their needs, Panda Express can build stronger relationships with its customers in smaller towns.

In Bennington, Hurd ponders about other big names that may follow? However, for now, the locals are relishing their chips and guac. Moreover, if Cava succeeds, small-town residents will soon be ordering mezze salad and harissa avocado.