Kigo Kitchen on Westlake Ave is bustling with customers from the surrounding Amazon or Microsoft buildings. The din of employees taking orders and stirring up the wok with fresh aromas of tamarind, pineapple, coconut and citrus chili fills the compact yet airy, high-ceilinged restaurant. Kigo serves 200+ customers an hour during lunch, second only to Chipotle in the Denny triangle neighborhood. Across the table from me, Steven Hooper, the founder of Kigo Kitchen explains that he’s only getting started.
Hooper first struck upon the idea of an Asian “fast casual” food chain for a class exercise while at business school. After graduating, he spent months fighting himself out of the idea. When the Compass Group, a global food service provider, came knocking, looking for exactly that concept at a student dining area at Boston’s Northeastern University, he could no longer turn away. He would get a captive audience and funding for operations while taking no leasing or site development risk.
Hooper opened shop on Sep 4th 2012. The campus joint sold 400–450 bowls a day from a 500 sqft space. An investment banker in his previous life, Hooper had proven that he was onto something. He returned to Seattle in Mar 2013, and raised funding to open three restaurants in the greater Seattle area which expected to cost $300–400 K investment a piece.
When Seattle’s food service visionaries set foot in the city 25 years ago, capital was short and employees were advised to delay cashing their pay checks. Business is not as starved for capital today but fresh local ingredients and restaurant clusters are still a draw for customers. Classic cooking methods (marinating and grilling meats, hand-cutting fresh produce, fresh sauce and guacamole) are crushing the industrial methods churning out frozen food from distant factories. The Financial Page of the New Yorker informs me that this is not just a business story. “The American food revolution” was seeded by affluent, busy Americans who have turned more discriminating in their food tastes and health choices since the ‘90s after the USDA began certifying food as organic.
Yet, it was Chipotle, Steve Ells’ “the gourmet restaurant where you eat with your hands”, a subsidiary of McDonald’s since 1998 which went public in 2006, that arguably defined the fast casual restaurant economics. In 2004, it earned $470.7 million in revenue from close to 400 restaurants. It concluded 2014 with $4.11 billion in revenue from close to 1800 restaurants. For a fast casual (vs. a fast food) chain, it’s remarkably similar to McDonald’s in sales per store ($2.3 million) and EBITDA (~20%). Yet, its profitable growth places it in rarefied shareholder territory — earning a 20x EBITDA multiple compared to McDonald’s 10x, Yum Brands’ 12x, and Starbucks’ 18x.
Kigo’s motif is not too different from Chipotle’s. Heather Nucifera, a licensed dietician and culinary school trained menu-developer, has created the “secret sauces” to add to a simple palette of partially cooked meats and fresh vegetables to bring it all together in under 90 seconds time after time. However, Hooper’s biggest challenge remains location selection and site development. The rent on Westlake Ave is upwards of $50/sqft, but a good location easily pays for itself. Kigo Westlake appears to breakeven with just its lunch hour sales. Its fast casual labor cost is 20% of revenue compared to casual dining’s labor cost of 30%, which makes each new store dramatically more operationally viable.
So, Hooper is scouting for new locations. For now, he wants to own his stores, serve good food, and stay consistent. Chipotle took a decade to begin ramping up on new store openings. Kigo may have its growth template in five.