You could credit this, in many ways, to the real-estate gaps exposed by 2008’s economic downturn. Barriers to entry vanished for operators. As e-commerce crippled retail outlets, restaurants boomed, especially new brands led by entrepreneurial-minded owners able to raise capital. Rent was low. Investor interest was high. Consumer spending fit the offering—restaurants offered a more attractive and budget-friendly outlet for consumers to indulge on experience than past options, like vacations.
To dress it down, the Great Recession’s retail correction eased the start-up cost dynamic of restaurants. And no category flooded into the opportunity more than fast casual. As Sisha Ortúzar, co-founder of ‘wichcraft, a brand fueled by “Top Chef” head judge and renowned restaurateur Tom Colicchio, told Partners + Napier, “everything changed” in New York City as landlords were suddenly “going out of their way to get tenants and rents definitely adjusted.”
The result: restaurants started to grow at twice the rate of the population, as The Wall Street Journal pointed out. From 1970–2015, the same phenomenon unfolded for malls.
So, what’s the full picture for fast casual? It’s simply a harder space to play in these days. But that doesn’t mean it’s doomed. Far from it.
You just can’t count on the tailwinds and merits of simply being a “fast-casual restaurant” anymore. Brands that will survive and grow will offer a stronger differentiator than competitors, and have the operational chops and technology to bring that vision to life. That’s one of the key areas struggling chains faltered in recent years—having a great concept and food but systems that couldn’t support growth. That or stumbling along the real-estate road to expansion. Many early fast-casual adopters enjoyed long lines and heavy traffic, and then slipped when the unit count expanded. Perhaps because they couldn’t oversee the operation from start to finish at every store, but also because site selection blocked progress. A booming concept in Chicago might not work in Milwaukee. And then those low rents mentioned before? That’s gone by the wayside as wage rates exploded under a low-unemployment economy.
Expect to see more shuffling and consolidation (think Cava and Zoes, Lemonade and Modern Market Eatery) as successful brands find winning formulas to growth. There’s less margin for error for contenders on the fringe. Providing a compelling differentiator might not come down to food, either. Brands can separate themselves through their technology platforms, their food, or their experience. “The world doesn’t need another premium submarine sandwich chain. It just doesn’t. We’ve already got plenty of them,” Gary Stibel, founder and CEO of the New England Consulting Group, told QSR earlier in the year.