Spoken aloud, the business plan sounded about as viable as planting citrus groves in the Bakken oil fields. Seeking a way to sell directly to consumers, a group of North Dakota farmers banded together about a decade ago to start an upscale, farm-to-table restaurant chain on the East Coast. There are easier ways to cut out the middleman than opening a restaurant thousands of miles 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 union meetings. Watne and the other farmers often discussed how the neighboring 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 U.S. Department of Agriculture. Finally, in 2006, Watne and the others decided to open an eatery in Washington, D.C., 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 and Patrick Ewing.
The 14,000-square-foot space was too big, and they began losing money as soon as they opened the door. Worse, the cost to transport food from North Dakota was unexpectedly high. Six months in, Agraria was hemorrhaging $150,000 a month in union money. Doing his best not to panic, Watne sought advice from two burned-out Cheesecake Factory (CAKE) executives he found through a Google search, and his luck turned: The concept they cooked up—fully realized at Founding Farmers in 2008—has taken off.
The Farmers Restaurant Group has since expanded to include three of the most successful culinary ventures in the D.C. area, serving tens of thousands of people a week 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 fulfill 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 $35 million in 2014 sales with at least $2.5 million in profits traveling back to North Dakota. Two more 250-seat venues are slated to open in 2015, and the projected revenue for the year is $46 million.
For its next location, to open in the fall, Farmers has hired Boston-area design firm Altitude, which has created “brand experiences” for organizations including the U.S. Air Force and Anheuser-Busch (BUD). “In the long term, if we can get to 10 restaurants—maybe $100 million in business—we’ll have the scale to run our own distribution channel, bringing in flour, potatoes, sugar, pinto beans, maybe rum,” Watne says. “We’re starting to get really good at this.”
When he met Watne in 2007, Michael Vucurevich, 58, had recently retired from the Cheesecake Factory, a leader in selling upscale food in ultrahigh volumes. As its senior vice president for operations for 11 years, he helped 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 analyzing each entrée for popularity, degree of difficulty, and profit to adjust by a penny or more. Dan Simons, 44, had been 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.
Right away, the pair adjusted Agraria’s menu to a more casual tier—$16 for an average entrée—which quickly pulled in more diners. (The former Agraria 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.
Neither Vucurevich nor Simons had been especially interested in sustainable food, but they were energized by Watne’s ideas. When they proposed a restaurant in a new location—and their taking charge as managers—Watne and the union agreed. Like Cheesecake, it would occupy the high-end casual-dining segment, so the kitchen would make everything from scratch. (Lower-end casual chains rely on prepared sauces and some frozen ingredients.) More important for Watne, these measures would bring the food processing and preparation in-house. Finally, the restaurant would rely on a surefire winner, especially in the capital: booze. The pair hired a former actor and trained mixologist to create cocktails, using organic vodka as well as gin and rye whiskey distilled from local grains.
Their new venture, Founding Farmers, earned $7 million in 2008, its first year, respectable for a 260-seat space. (A similarly sized Cheesecake Factory averages around $9 million; a PF Chang’s China Bistro does about $4.3 million.) 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. 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 (PCLN), and table waits grew to two hours on the weekend. Today revenue from the cramped 8,500-square-foot location grosses an unheard-of $16 million annually. A second Founding Farmers 40 minutes away brings in $9 million. In a stroke of luck that seems almost biblical, the ailing Agraria location in Georgetown closed for repairs when a storm flooded the dining room; the company rebuilt it into an operation that’s now at $10 million and growing.
(Bloomberg Businessweek)
