Fast-Growing Fast Casual
New concepts continue to boost this restaurant segment.
The fast-casual food segment may be small, but its growth is outpacing the
restaurant industry, attracting new competitors and spurring evolutionary changes
from quick-service and full-service brands.
sales were about $31 billion in 2012, up 13 percent from the prior year. That’s
a huge increase from 2005, when segment sales were about $12 billion. Fast
casual makes up about 7 percent of the $435 billion restaurant industry, but
that share will continue to grow. Technomic forecasts a 3 percent nominal
increase in restaurant industry sales in 2013 over the prior year but expects
fast-casual segment sales to rise by about 10 percent.
Site Selection Factors
casual is generally defined as establishments with a limited-service or
self-service format, check averages above $9, food prepared to order, fresh (or
perceived as fresh) ingredients, innovative food suited to sophisticated
tastes, and upscale interior design. Fast-casual concepts tend to attract more
lunch than dinner business, but several chains are courting evening guests with
enhanced service, comfortable dining rooms, and adult-beverage menus.
fast-casual brands target the same locations that other restaurants —
especially quick-service concepts — do. However, fast-casual concepts generally
don’t have a drive-thru, so their units — averaging 2,000 to 4,000 square feet,
depending on the brand, location, and other factors — are also suitable for
strip centers and city centers. At the same time, their focused menus don’t
require the large kitchens that full-service operators need.
most of their business occurs at lunch and their customers tend to have higher
household incomes, fast-casual chains target areas with both midday traffic and
residents with incomes greater than $50,000. But their appeal enables them to
thrive in cities, suburbs, and small towns.
segment has much going for it in today’s economic and social climate.
Fast-casual restaurants give casual-dining consumers an opportunity to trade
down to lower-priced yet high-quality fresh food. At the same time, they allow
quick-service customers to trade up to a “third place” environment that offers
affordable food quickly at a cost that is usually only a few dollars more than
typical fast food.
consumers tend to be from higher-income groups, and those making higher incomes
have been affected less by the recession and slow economic recovery. The segment
also attracts younger customers. However, as the segment continues to grow, its
customer base becomes more mainstream.
fast-casual segment has origins in what used to be called “home meal
replacement” and “adult fast food.” Chains such as Fuddruckers, Au Bon Pain,
and Taco Cabana featured food, atmosphere, and prices that were a step above
quick service, in an effort to offer casual-dining quality in a limited-service
setting. In the 1990s, fast-casual concepts such as Boston Market, la Madeleine
Country French Café, and Einstein Bros. Bagels raised the bar on convenience
and efficiency, which made them even more competitive with quick service.
Throughout the segment’s evolution, some concepts have adapted to remain
relevant, and others have not.
leading fast-casual chains have built on the strengths of their predecessors
but have continued to stay ahead of consumer demands for comfortable and
contemporary décor, fresh and better-for-you food, and social consciousness.
ahead, there are several areas where tomorrow’s leaders will differentiate
themselves. Leading chains are capitalizing on their successful formulas to
create new concepts. For example, Chipotle’s ShopHouse Southeast Asian Kitchen
features the company’s proven format offering customization of high-quality
ingredients, applied to Vietnamese, Malaysian, and Thai flavors served on rice,
noodles and bahn mi.
leaders are looking at ways to enhance varying points of service. On one hand,
Panera and McAlister’s Deli are testing drive-thrus to up the convenience
factor. At the other end of the spectrum, Wingstop has debuted a casual-dining
concept, Wingstop Sports, with a sports-bar-and-grill atmosphere, plenty of HD
TVs, and a full food and drinks menu.
emerging concepts are taking the menu to the next level, aiming to offer
fine-dining cuisine in a limited-service format. Tom & Eddie’s, a
higher-end better-burger concept developed by two former McDonald’s executives,
features menu items developed in collaboration with local college culinary
programs. Its $13 average check is slightly higher than the average fast-casual
several growing fast-casual concepts are looking for new ways to engage their
media-savvy customers with LCD menu boards, HD flat-panel entertainment,
complimentary Wi-Fi, social networking, and entertaining but useful mobile
A look at
growing chains within fast casual finds both national leaders and emerging
upstarts. Among the larger chains, Jimmy John’s Gourmet Sandwich Shop opened
231 units in 2012, for a total of 1,560, which was the largest increase in U.S.
units for a fast-casual chain in 2012. Chipotle Mexican Grill and Panera Bread
netted the next largest increases for the year, adding 174 and 163 units,
terms of ownership structure, among the top 150 fast casual chain restaurants,
47 percent of the units are company owned and 53 percent are franchised.
Ninety-seven, or 65 percent, of the top 150 fast-casual brands have at least
one franchised unit.
growing fast-casual chains reveal some menu-segment potential. Niches like
bakery cafés, fresh Mexican, and so-called “better burgers” are already well
represented by leading brands such as Panera, Chipotle, and Smashburger.
However, the ongoing success of these brands, as well as the reasons that
consumers like them, indicate that there still may be plenty of opportunity in
those menu segments.
the ranks of the fastest-growing fast-casual chains with less than $50 million
in U.S. sales, three categories are represented most often: burgers
(Bareburger, Umami Burger, Mooyah, Elevation Burger, and Jake’s Wayback
Burgers), Mexican (Hot Head Burritos and Lime Fresh Mexican Grill) and healthy
(Fresh Healthy Café, Muscle Maker Grill, and The Veggie Grill). Technomic is
watching other segments that have significant growth potential and don’t
currently have a leader with national coverage, in particular, Mediterranean,
made-to-order pizza, barbecue, upscale chicken, and “green” fast-casual
expects that fast-casual growth will continue to outpace industry growth, and
that ongoing innovation and new development will come from both category
leaders and upstarts.
Tristano is executive vice president of
Technomic, Inc., a Chicago-based foodservice consultancy and research firm. For
more information, visit www.technomic.com.
Is the Retail Tide Turning?
Calanog and Brad Doremus
vacancies for neighborhood and community shopping centers remained unchanged in
third quarter 2013, according to Reis’ preliminary results. This should come as
no surprise, given the fragile nature of the recovery. The vacancy rate for
smaller centers now stands at 10.5 percent, down 30 basis points year over
year, and just a paltry 60 basis points below the peak vacancy rate of 11.1
percent recorded two years ago.
million square feet of space was absorbed this period, the slowest rate of
increase in occupied stock this year. And this was despite the fact that 1.5
million sf of new space came online, the largest quarterly addition from new
construction in 2013.
uncertain backdrop for retail properties across the nation, developers are
justifiably reluctant to bring new space online. Only 3.6 million sf of new
space has entered the market year-to-date, putting 2013 on track to beat the more
than 32-year record low for new construction set in 2010, when only 4.4 million
sf of new shopping centers were built.
grew by 0.3 percent in 3Q13, while effective rents grew by 0.4 percent. This
growth rate roughly follows the pace of the last couple of quarters; however,
when compared to 2012’s average quarterly growth of between 0.1 and 0.2
percent, it does represent a slight acceleration. On an annual basis, asking
and effective rents both grew by 0.5 percent in 2012 and should at least double
that growth rate by year-end. This is certainly a welcome development for
retail property owners and investors, suggesting that landlord pricing power,
which declined severely for three years from 2008 to 2010, is now beginning to
show some signs of strength.
neighborhood and community center rents lost a lot of ground given the severity
of the recession and the sluggish recovery. Rents fell for about 10 quarters in
a row from mid-2008 to mid-2010, and have been growing at a paltry rate for
only the last eight quarters. Many submarkets around the country are still
anywhere from 5 percent to 10 percent below peak rent levels from early to
mid-2008, with attendant implications for new leases signed at lower rents,
diluting landlord income. Financing is still generally unavailable for most new
retail development, unless a project is backed by the soundest real estate
investment trusts or boasts a pre-leasing rate of above 70 percent.
submarkets show relatively more robust patterns in fundamentals, but the
general landscape of retail can still be characterized as a world of haves and
have-nots. Rich, insulated neighborhoods boast healthy retail centers while
others contend with largely empty husks of older retail space.
Victor Calanog is
head of research and economics and Brad Doremus is senior analyst for New
York-based research firm Reis.