One Year Into COVID, First Watch Sees More Promise Than Ever

From a Digital Boom to Cocktails, the Nation’s Fastest-Growing Full-Service Brand Is Ready To Restart Its Journey.

Photo Courtesy of First Watch.

On Easter Sunday last year, the truth is, nobody had a clear view of COVID-19’s path. The U.S. had just surpassed Italy for the most fatalities at 20,000. Every state was falling under a disaster declaration for the first time in history. And yet just weeks earlier, then-President Donald Trump had said he would like to see the country “back to work” by the holiday. The virus, and setbacks that followed, remained, as ever, wildly convoluted.

At First Watch, CEO Chris Tomasso wasn’t going to play the reactionary game. The nation’s fastest-growing full-service chain temporarily shuttered its entire company-run footprint, including to-go and delivery. “Nearly impossible decisions,” Tomasso said.

By the middle of last May, First Watch began to reopen dining rooms in two markets (most are full-tilt today). And it did so as a stronger brand with a suddenly robust off-premises arm. Before COVID, guests had to call the restaurant to get takeout. Now, business outside the four walls was up 600 percent.

Roughly a year removed from that Easter decision, Tomasso says he’s reflected often. Personally, professionally, and through the lens of where the brand is today.

“You know, you’d like to grade yourself on each of them and then collectively and overall,” he says in an interview with FSR. “I think because we really focused on our employees and putting them first, I give us pretty high scores for the decisions that we made. Not only for the employees, but for the best interest of the business.”

Importantly, the story has changed at First Watch. It’s gone from a protect-and-reflect tale to something far more comfortable for the brand. Despite First Watch’s strategic pause, it still managed to open about 20 restaurants last year.

From the end of 2018 to the end of 2019, the chain reported net growth of 71 locations. Nobody in the category was even close. There wasn’t a single chain outside of First Watch to eclipse the teens in terms of net-unit expansion. Black Bear Diner, the nearest, added 18 restaurants from 120 to 138. First Watch even opened 12 more stores than Shake Shack.

Also, if you go back to 2006—Tomasso’s first with the brand—there were just 60 restaurants. First Watch grew to more than 250 in the next 12 years, picking up a majority investment from Advent International in 2017. Today, there are 415 locations. Much of the recent expansion consists of restaurants in progress before First Watch hit the COVID brakes. So 20–30 should open in 2021 as the pipeline reignites, Tomasso says. If not for the crisis, it would have been closer to 50.

Yet still, First Watch didn’t close a single restaurant permanently due to the crisis. And even tempered at 20 units, Tomasso isn’t sure any sector competitors got that high in 2020. On March 15, First Watch opened its first Greater Chicago location in Oak Brook. The restaurant marked the first of what the company believes will be three to four restaurants per year in the Windy City for the foreseeable future.

Notably, it’s a second-generation build, just like another recent opening in Winter Park, Florida. This is something Tomasso believes will emerge as a common theme. While nothing new to growth-minded concepts, what has changed in the wake of COVID are the specifics. Namely, these conversion spots popping up are standalone restaurants. Outparcels that were concepts and chains retracted during the pandemic.

“We’ve been opportunistic in those areas to find those sites that make sense for us,” Tomasso says.

Some of the locations are bigger than what First Watch is used to. The Oak Brook store, for instance, stands 4,200 square feet.

This isn’t a negative exactly, despite the broader industry rush toward smaller boxes. First Watch is converting the extra space toward some pandemic-triggered enhancements, things like dedicated to-go areas or second make-lines in the back. Larger patios.

One of the reasons First Watch originally exploded was its agility. You see the brand in strip centers, casual-dining conversions, and everything in between. Tomasso says the only requirement is kitchens stay the same in every unit. But otherwise, there are walk-in coolers outside, completely different configurations for dining rooms. Patios on the front, side, and wrapped around. And so forth.

Some new tools for First Watch today include a separate to-go entrance or vestibule for pickup, where guests don’t have to flow into the dining room and stuff the lobby. To capitalize on the outdoor-dining boom, which Tomasso expects to endure, the recent Orlando-area unit boasts an indoor-outdoor 360-degree bar environment where customers can sit and grab drinks (more on this later).

First Watch paid specific attention to patio upgrades in recent months, too. In a COVID landscape, they’ve taken on added importance, and not just because they build on capacity. Patios also attract passerby consumers who aren’t sure where to stop for a meal, what’s even open, or if they can (or should) go inside. Seeing an attractive patio takes care of that, Tomasso says. It’s leading to demand generation and trial.

First Watch invested in simple elements like greenery, heaters, and fans. But it also recessed patios, meaning they’re still under the roof of the restaurant. Now, there’s a hard roof that opens out. And, in some spots, First Watch deploys garage doors to extend the experience. The Orlando spot features accordion windows that open up and bring the “outside in and the inside out, and make it just an immersive experience for the customer,” Tomasso says.

First Watch's Oak Brook debut includes tall windows that provide bright natural light and an elevated dining experience that builds upon the company's "Urban Farm" prototype with the addition of warm blue tones, high open ceilings, an open kitchen, and a sunroom and patio.

From a high level, Tomasso says competition has been stiffer than expected among restaurants for sites, at least in terms of mid-2020 predictions. This is especially true in the suburbs, where First Watch predominantly resides.

This makes the flexibility element all the more critical, he says. There are a lot of different ways restaurants can reach guests currently, and footprints can reflect that. As successful as First Watch’s off-premises growth was, however, dine-in remains the essential target. In November, the brand brought alcohol to restaurants for the first time since its founding in 1983. It arrived with a menu of signature brunch cocktails at 100 locations.

Some launch options included Cinnamon Toast Cereal Milk: Coconut rum, cold brew coffee, coconut milk, and agave nectar; and the Million Dollar Bloody Mary: Gluten-free vodka, house made bloody Mary mix, and a strip of First Watch’s signature Million Dollar Bacon.

Alcohol was in the works well before COVID, Tomasso says. Pilots showed demand and incremental, additive business. But the pandemic timing worked in First Watch’s favor. Customers making the break from quarantine life haven’t been hesitant about indulging, Tomasso says. And he expects that to carry through when pent-up demand and social occasions surge back into the picture. Typically, these things hold hands.

Today, about two-thirds of First Watch’s company-owned restaurants offer alcohol. “Obviously, highly profitable,” Tomasso says. “And also helps us appeal to a different demographic perhaps than we were before.”

The alcohol program, coupled with off-premises growth (and capacity increases, of course) have helped First Watch inch closer to 2019 sales levels. “We couldn’t be happier about that and we’re ready to continue to grow,” Tomasso says.

First Watch’s average per-person check is $14. It’s a concept that thrives on frequency as a “network of neighborhood restaurants, not a chain,” Tomasso says.

At the onset of COVID-19, First Watch spent lockdown days fast-tracking online ordering and delivery. It partnered with Olo to do so, linking up with DoorDash and Uber Eats at all locations as well. The company also developed a new mobile app to allow guests to place orders for takeout and delivery, and get in-line for a table when deciding to dine on-site. First Watch integrated technology with waitlist management solution Wisely to manage the wait for dine-in and curbside pickup, while simultaneously gathering guest data on consumer preferences.

The waitlist tool, first announced in June, is active on First Watch’s app, website, and Google. Data runs into Wisely’s CRM, giving First Watch the insights needed to trigger or automate personalized campaigns. Wisely deploys data collected from Olo to populate the CRM.

As a result, First Watch’s off-premises mix rose to 30 percent of sales by the fall—up from 6 percent in 2019.

“That’s a mix of those sales going up and the in-restaurant sales going down, as to why those percentages grew like that,” Tomasso says. “Be that as it may, the dollars that we’re doing in to-go is substantially more than we’ve ever done before.”

Tomasso credits this to the Easter call to suspend operations at corporate units for more than a month. “We geared that whole function up, and that muscle, and we stood that up and now we’ve gotten good at it,” he says. “What we’re anxious to see is when consumers feel more comfortable going back in dining rooms to eat and we get back to those pre-COVID levels there, how much of that off-premises will we retain?”

Elaborating on his earlier employee comment, Tomasso says First Watch is at the “staffing levels that we’ve been targeting,” although the overall picture remains murky considering unemployment benefits and other changes taking place nationwide.

First Watch committed out of the gate to continuing all furloughed workers’ existing healthcare benefits and to covering 100 percent of out-of-pocket costs, co-pays, and deductibles for any medical visits related to COVID.

It also invested in telemedicine for every employee and their family, at no cost, and provided relief payments to long-tenured furloughed hourly workers to help with immediate expenses.

For perspective, that latter benefit was previously offered to employees on First Watch’s insurance plan, or roughly 1,300 people. So, essentially within days, it added another 7,000 people.

Additionally, First Watch created an employee assistance fund, called the You First Fund (a play on the company’s mantra) that offered $1,000 to eligible workers.

One of the bigger efforts, though, was a company promise to managers to make them financially whole by providing a bonus upon their return to work to assist with hardship costs incurred as a result of the pandemic and work to close the gap between the federal and state benefits they received and their First Watch salary. Basically, when they returned, First Watch paid the difference in their salary versus what they received in UI benefits.

“The most important part of that is we kept people who were already invested in First Watch,” Tomasso says. “Already trained. Already knew our systems. And that has tremendous value. The fact we didn’t have turnover at that time, I know has a savings effect versus bringing in new people and training them.” First Watch was also one of the early brands to offer PTO for vaccines (two hours in this case).

Looking forward, Tomasso falls into the camp of restaurateurs who believe a pent-up demand era is coming.

“I do believe that we’ll see a return and a resurgence,” he says. “I think it has been well publicized and well documented the challenges that our industry faced during this time. I think the consumer respects that, and wants to show their support. And not only that—I really think overall the consumer recognized how important socialization and dining out really is to them. And their lives. And I think they’re anxious to get back to that and we’re obviously anxious to welcome them.”


Source: 2021 FSR Magazine.

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