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Natural Growth

In the food industry’s rush to become health conscious and sustainable, Mendocino Farms has found growth by merging those trends with the old-fashioned sandwich shop. The Studio City-based fast-casual restaurant has grown its revenue by 88 percent during the last three years to rank No. 21 on the Business Journal’s list of Fastest Growing Private Companies. The company generated $22.9 million in sales in 2014. Last month, Mendocino announced that grocery giant Whole Foods Market Inc. made a minority investment in the company and will help with its expansion. It will open small locations inside select Whole Foods supermarkets, the latest example of the store-within-a-store trend. But the chain continues to grow its roster of on-the-street stores. It opened an El Segundo location in September, and last month’s launch of a Santa Monica store put its tally at 12. “These two stores we’ve been really excited about because we’ve wanted to be on the Westside forever,” said Ellen Chen, 42, co-founder of Mendocino. “We really have tried to blur the lines between a casual dining and fast-casual restaurant. … We really want to be that neighborhood gathering place where you can come and hang out.” Launched by Chen and her husband, Mario Del Pero, in 2005, the company has locations in downtown Los Angeles, Orange County and the San Fernando Valley. On the menu, Mendocino is known for putting an innovative twist on favorite dishes such as the tuna melt and the Cobb salad – as well as its vegan and gluten-free items. Marcia Schurer, founder of restaurant consultancy Culinary Connections in Chicago, said the fast-casual segment has evolved over the years to appeal to changing consumer tastes. “There is more interest in vegan, vegetarian and gluten-free (products),” Schurer said. “More young adults have been raised to be more concerned about eating animals and some choose that lifestyle because they truly do have allergies to those foods.” Mendocino’s casual environment and relaxing décor has made it a welcome tenant at family-oriented shopping centers such as Regency Centers Corp.’s Westlake Plaza in Westlake Village and the Marina Waterside Shopping Center in Marina del Rey. According to Chen, each Mendocino location is designed to complement its neighborhood. The Santa Monica location features beach-themed décor with a clean modern feel, while the El Segundo store has a “chic coastal” vibe accented by black chalkboards and vintage window frames. “We’re starting to go back and to reinvest into the stores from a design perspective,” she said. “(Mendocino) has become more noticeable and speaks to each neighborhood.” Whole Foods deal With its presence in the Southern California market well-established, Mendocino is looking to move into Northern California next year, with plans to open four to six restaurants. Chen said she’s looking at outlets in San Francisco, the East Bay and Sacramento. “It’s about finding the right location and neighborhood. To go into a new area from supply chains to management we want to go into areas that make the most sense,” she said. Another growth strategy involves the Whole Foods minority investment. The grocer, which has 431 stores in the U.S., Canada and the United Kingdom, will test Mendocino outlets inside supermarkets, starting with a shop in Orange County. Mendocino restaurants will also be tested in a new store format called 365 by Whole Foods Market in California. Whole Foods announced earlier this year that it will launch five 365 outlets in the second half of 2016 in Washington, Oregon and California. The grocer estimates double the number of openings in 2017. “We’ll be right in the front as you enter,” Chen said. “It’ll look and feel like Mendocino Farms and we’ll have our team members in there.” The company did not disclose how much Whole Foods invested nor did it provide further detail regarding how many hybrid grocery-restaurant locations it will open. “Mendocino Farms is one of the best sandwich and salad concepts coming out of Southern California and we believe it’s one of the top emerging brands in California,” said David Lannon, executive vice president of operations at Whole Foods Market, in a statement. “We are always looking at trends in the food industry, especially those that complement our existing offerings.” This is not the first investment Mendocino has received. In 2010, New York-based GrowthPoint Restaurants, an early stage investment company founded by restaurateur Nick Marsh, invested $1.2 million. At the time, GrowthPoint became a majority investor. Then in 2012, private equity firm Catterton Partners in Greenwich, Conn. made a capital investment, and although specific terms were not disclosed, both investment firms continue to own shares of Mendocino today. In addition to the Whole Foods deal, Chen said Mendocino is rolling out a store in Brea early next year and will expand further south into San Diego as well. With its four to six proposed outlets in the north, plus the Brea location and its San Diego expansion, the chain could nearly double its unit count next year. Culinary Connections’ Schurer said the company’s goals are realistic, but they will require an innovative approach and business savvy. “I think the challenge is: Can you do it well and profitably while delivering on the promise to the consumer?” Schurer said. “If you want to be successful, you have to make what you bring to the market sustainable over time – you need to know business, your market and your consumer. The key is: Can you keep them coming back?” Local suppliers Mendocino was founded conceptually in 2003, but it wasn’t until 2005 that the idea came to fruition. The husband-and-wife duo opened their first location on Bunker Hill in downtown Los Angeles. The former Starbucks location was tiny but had potential, according to Del Pero. A decade later, the chain has grown to a dozen outlets. Mendocino partners with local farmers and suppliers, including Scarborough Farms in Oxnard, for its produce and greens; Drago Bakery in Culver City for its bread; and Petaluma Poultry in Petaluma for its free-range chicken. Some of Mendocino’s sandwich and salad options include the Steak BLT and Smoked BBQ Pulled Pork sandwiches, in addition to Kale Caesar and Chinese Chicken Salad. Vegan options include falafel wraps and a meatless banh mi – for $1.50 more, customers can opt for gluten-free bread. Prices range from approximately $8 to $12, not including the kids’ menu. “(Mendocino) has a lot of standard items that have been modernized. They’ve taken favorites in the mind of the consumer and have changed it to this point and time, adding more flavors and sourcing fresh local ingredients,” said Schurer. “There is an increased interest in more local foods from more sustainable farmers with more humane farming practices, and more businesses are trying to support the infrastructure of the local economy.” Similar sandwich and salad shops popular in the L.A. market include franchisers Corner Bakery and Which Wich, both of which are based in Dallas, and Sandwich Shop and Cole’s in Los Angeles. But in the midst of this competition, Mendocino’s direct supply chain sets it apart. “It’s truly a local brand. Mario works with local farmers and suppliers to (keep) it local,” said Emily Johnston, an agent at Konnect Public Relations in Los Angeles and a former Mendocino employee. “Personally, I know when I started working there I liked the obvious Whole Foods aspect of it and how it follows Chipotle’s lead of integrity. Most restaurants out here are so health conscious and Mendocino offers vegan and gluten-free options. I think that is why a lot of people in the SoCal market like it.”

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