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Dig Inn Leads the Next Generation of Fast Casual Restaurants

Stocks in this article: CMG PNRA MCD BKW

NEW YORK (TheStreet) -- The success of Chipotle  (CMG)CMG and Panera Bread (PNRA)PNRA have spawned new companies looking to expand on the fast casual restaurant experience. The latest is New York's Dig Inn.

What Chipotle has done for restaurant design and food quality hasn't gone unnoticed by Adam Eskin, Dig Inn's founder and CEO.

"I think a lot of the concepts out today that are focused on higher quality in a fast format, I think we all have to give thanks to Steve Ells and Chipotle for sort of paving the way," Eskin said in an interview conducted at a Dig Inn location in New York. He added, "They were really the pioneers in saying you can deliver high quality ingredients, classical cooking techniques, in a fast format and deliver value."

The new generation of fast casual restaurants, led by energetic leaders who are highly knowledgeable about all facets of the food business, can't come quick enough for the industry. According to the National Restaurant Industry, sales for the industry are projected to grow a mere 3.6% in nominal terms this year, or 1.2% adjusted for inflation. The growth rate is being held back by lower average guest checks and guest counts at the established fast-food chains. According to research firm NPD Group, traffic counts were flat for quick-service restaurants in the year ended November 2013, while same-restaurant sales for McDonald's (MCD)MCD and Burger King (BKW)BKW have fallen an average 0.8% in the past five quarters.

However, the numbers hide that chains like Chipotle, Panera Bread and Dig Inn are the bright spot for the industry. For the year through November 2013, NPD Group said the fast casual segment realized an 8% gain in average guest check. Average check clocked in at $7.40 for fast casual and $5.30 at QSRs for the same time period -- Chipotle's average check was $11.56 compared with $3.88 for McDonald's.

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The similarities between Chipotle and Dig Inn are noticeable, from a menu rooted in healthier options at affordable price points, to the restaurant's efficient interior layout. "So we like to have a queue, come down the line, pay cash, grab your utensils, and you're out the door," Eskin explained.

Another similarity is that both companies are Earth-friendly. Chipotle has championed the use of sustainably raised ingredients from local sources, while Dig Inn has gone further by recently introducing compostable plates and utensils. "On the paper products side, we partnered with a company called Be Green (Packaging)," Eskin said. "Given what we do, we wanted to develop something that was truly unique and specific to our concept and delivering our food. We worked with them on this compostable plate for about a year; it just launched two weeks ago."

Although the companies are much alike, Dig Inn has its own unique characteristics that push the fast casual restaurant concept to a new level. One is on the kind of food served. "We are not necessarily cuisine based; we aren't a burrito food concept. So we are cuisine agnostic. The second thing is that we are really focused on vegetables. We haven't really seen any other concepts focused on vegetables," said Eskin. Roughly 70% of Dig Inn's business is derived from sales of vegetables.

Dig Inn will finish 2014 with 10 locations in New York; two are currently under construction. "Heading into next year, we would look to pop up another five or six here in New York. It's very likely we will branch out to our second market in 2015, with that plan looking like Boston," Eskin said. Dig Inn could have 75 locations over the next few years, he said.

Many of those sites could eventually sell locally sourced beer and wine. Eskin said a new location on 28th  Street and Broadway in New York will be the restaurant chain's first with a beer and wine license, and the company is in talks to partner with nearby businesses that specialize in craft beer and wine.

With its its popularity in New York, and expansion plans, Dig Inn could catch the eye of a bigger player in the quick service or fast-casual industry seeking to improve its top- and bottom-line growth. 

-- By Brian Sozzi CEO of Belus Capital Advisors, analyst to TheStreet. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff. Brian Sozzi is the CEO and Chief Equities Strategist of Belus Capital Advisors. He is responsible for developing and managing an equities portfolio of mid- and large-cap positions, in addition to leading the firm's digital content initiatives. He is also a personal finance columnist for Men's Health magazine.

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