American organic growth with a slice cheesecake

When North Dakota farmers opened an upscale farm-to-table restaurant in Washington, it was a flop. But with help from two Cheesecake Factory veterans, Founding Farmers won a top ranking and has been reaping unheard-of revenues.

Jars of pickled vegetables on display at the original Founding Farmers restaurant in Washington. Jose Luis Magana / AP Photo

About a decade ago, a group of North Dakota farmers banded together to start an upscale, farm-to-table restaurant chain on the East Coast of the US. There are easier ways to cut out the middleman than opening a restaurant thousands of kilometres away.

“We really didn’t know what we were doing,” admits Mark Watne, the 53-year-old head of the state’s farmers’ union. “But we were trying to find some avenue for our products and not end up with just another commodity.”

For years, direct-to-consumer sales had been an agenda item at the union’s meetings. Mr Watne and the other farmers often discussed how the neighbouring Minnesota Farmers Union sold food at the state fair just outside Minneapolis every year. Nationally, farmers’ markets and farm-to-table restaurants had tripled direct sales of food from 1992 to 2007, according to the US department of agriculture.

Finally, in 2006, Mr Watne and the others decided to open an eatery in Washington, DC, where there were lots of foodies and politicians to schmooze. Called Agraria, the glitzy $6 million steak joint began on the ground floor of a Georgetown building, whose other tenants included Nancy Pelosi (politics) and Patrick Ewing (basketball).

The 14,000-square foot space was too big, and Agraria began losing money as soon as it opened its doors. Worse, the cost to transport food from North Dakota was unexpectedly high. Six months in, Agraria was haemorrhaging $150,000 a month in union money. Doing his best not to panic, Mr Watne sought advice from two burned-out Cheesecake Factory executives he found through a Google search, and his luck turned.

In 2007, when Mr Watne put out his call, Michael Vucurevich, 58, had recently retired from the Cheesecake Factory, a leader in selling upscale food in ultra-high volumes. As its senior vice president for operations for 11 years, he helped to invent the science of “polished casual”, regularly running staff drills wherein 1,000 entrées came through an ordinary kitchen in a single hour.

He supervised the development of a prep cook’s station arranged as tightly as a Lockheed Martin aircraft cockpit with tools, spices and stove dials within arm’s length. And he was an early adopter of advanced restaurant software packages – systems for flexibly ordering food supplies as needed and analysing each entrée for popularity, degree of difficulty, and profit to adjust by a penny or more.

The second Cheesecake alumnus, Dan Simons, 44, had been Mr Vucurevich's protégé at Cheesecake, fresh off a server-training career at TGI Friday's. In contrast to his former boss, he was chatty, sometimes whimsical, and prone to spontaneous brainstorms.

Neither Mr Vucurevich nor Mr Simons had been especially interested in sustainable food, but they were energised by Mr Watne’s ideas. When they proposed a restaurant in a new location and their taking charge as managers, Mr Watne and the union agreed.

The plan the men cooked up would be fully realised in 2008 with the opening of the Founding Farmers eatery, three blocks west of the White House.

Right away, Mr Vucurevich and Mr Simons adjusted the menu to a more casual tier – $16 for an average entrée – which quickly pulled in more diners. (Agraria had served an $18 hamburger; Founding Farmers’ All-American Double runs $10.) Next, they installed operational efficiencies, such as increasing the menu size while cutting the food inventory in half.

These changes cut the burn rate to $10,000 a month. Like Cheesecake, Founding Farmers occupies the high-end casual dining segment, so the kitchen makes everything from scratch. (Lower end casual chains rely on prepared sauces and some frozen ingredients.) More important for Mr Watne, these measures would bring the food processing and preparation in-house.

The new venture earned $7m in 2008, its first year, respectable for a 260-seat space. (A similarly sized Cheesecake Factory averages around $9m; a PF Chang’s China Bistro does about $4.3m.) Word of mouth grew. Tourists, legislators and students embraced the humble farmhouse aesthetic, with its rough-hewn wood floors and hokey vinyl letters over the entrance. The industry analyst Bonnie Riggs of NPD Group sees Founding Farmers as part of the growth of the polished, or upscale, casual sector, where “diners, and especially millennials, are willing to save up for a unique experience when going out to dinner and are now less likely to visit a stamped-out chain”.

The restaurant soon shot to No 1 nationally on the industry’s dominant reservations app, OpenTable, and table waits grew to two hours on the weekend. Today, revenue from the cramped 8,500 sq ft location grosses an unheard of $16m annually. A second Founding Farmers 40 minutes away in suburban Maryland brings in $9m. In a stroke of luck, the ailing Agraria location in Georgetown closed for repairs when a storm flooded t he dining room; the company rebuilt it into an operation that is now at $10m and growing.

With three of the most successful culinary ventures in the DC area, Farmers Restaurant Group is serving tens of thousands of people a week – further, it plans to open a fourth branch in northern Virginia soon – and creating a viable path for direct-sourced farm products on a massive scale. The bread and pasta at each restaurant come from farmers’ union wheat growers. Honey is sourced from rooftop apiaries in downtown Washington. Perishable goods such as eggs and milk come from mid-Atlantic family-farm cooperatives.

The three locations fulfil the North Dakotans’ deeply held belief that family farms need to reestablish a connection to the consumer to survive. And it satisfies the union’s business and investor partners, who have seen $35m in 2014 sales with at least $2.5m in profits travelling back to North Dakota. Two more 250-seat venues are slated to open in 2015, and the projected revenue for the year is $46m.

For a location opening this autumn, Farmers has hired the Boston area design firm Altitude, which has created “brand experiences” for organisations, including the US Air Force and Anheuser-Busch. “In the long term, if we can get to 10 restaurants– maybe $100m in business – we’ll have the scale to run our own distribution channel, bringing in flour, potatoes, sugar, pinto beans,” Mr Watne says. “We’re starting to get really good at this.”

Of course, hawking food under the banners “farm to table” and “sustainable” carries risk. In 2009, in a front page story for The Washington Post, a reporter called out the Farmers management for serving out-of-season vegetables and using a conventional, mainstream salmon supplier. Mr Simons immediately pulled back on the claims made on the menus and website copy, taking pains to differentiate between what is sustainable (honey) and what is not (orange juice). He paid for an extensive audit from Boston’s Green Restaurant Association for an apples-to-apples comparison with more stringent eateries across the country. The verdict? “Not a high percentage of the food is locally sourced or organic, but they do sell a lot of vegan food to non-vegetarians,” says the GRA’s Michael Oshman. “Making items low on the food chain [such as fruits and vegetables] attractive to consumers has a significant environmental benefit.”

Mr Simons endeavours to advance the real message of the North Dakotans: The farmers say those who cultivate their own land and intend to hand it down to the next generation are inherently interested in sustainability, a claim backed by USDA studies. In the context of customers’ varied ethical and food-sourcing concerns, however, that message can get complicated.

Mr Simons, for instance, recently responded to one challenging email about bull castrators. He had hung a few of the implements in the men’s bathroom at the Founding Farmers in Washington. The letter writer, a strict vegetarian, felt the eatery was making light of an inhumane practice and intended to organise a boycott.

Mr Vucurevich and Mr Simons immediately called Mr Watne and other North Dakotans for advice, investigated alternative practices and finally came to the conclusion that castration was an unavoidable, and arguably humane, part of the meat-producing industry. He wrote back that the decorations would stay.

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