Expansion | May 2008 | By Lea Davis

Confounded by Fast-Casual

Why the true count of fast-casual units is one of the most nebulous numbers out there.

Twenty experienced restaurateurs— marketers, operations specialists, and management executives from all across the industry—gathered in January in Orange County, California, to talk about the issues driving their businesses. All members of Technomic Inc.’s Operator Advisory Board, they went back and forth, passionately discussing the challenges shaping their daily work. And then the talks shifted to the fast-casual segment.

The exchanges grew intense, and remained largely positive. Yet the topic proved confusing, even for the in-the-trenches experts, recalls Darren Tristano, the executive vice president of Technomic Information Services and one of the meeting leaders.

Questions about the definition of “fast-casual” abounded. Which concepts were in? Which were out? Does having a drive-thru mean you can’t be included? And just how many units are in the fast-casual segment?

This wasn’t the topic Tristano had planned to focus on. But he was not surprised that it came up. Nor did he have a firm answer on that last question. In fact, industry researchers can tell you nearly everything about fast-casual—when and how it started, which kinds of customers eat there and how much they spend, and what its growth prospects are. Yet they are stymied when it comes to how many units there are. And to chase down the answer is to run into a vortex of shifting definitions and opinions.

Because of that confusion, the major research firms and consultancies hesitate to reveal their exact approaches for tallying domestic fast-casual units. On the surface, the formula seems simple enough: Define which concepts are fast-casual concepts, figure the number of U.S. units in each one, and add them up. But that first step—the definition—is the rub. There is no fixed set of qualifications for what makes a concept fast-casual.

It’s generally acknowledged that fast-casual concepts are hybrids of quick-service and casual dining that provide counter service and offer more customized and freshly prepared dishes than traditional quick-serves, all in a upscaled, inviting atmosphere. It’s conceded that fast-casual concepts should not feature a drive-thru window or true table service. An entertainment factor often figures in, even if it’s simply the customer’s proximity to and interaction with the staff as his food is prepared—for instance, the choice of side dishes at Panera or the interaction with the person building your burrito at Chipotle.

Beyond that, the designation seems to be fair game. “There are blurring lines. There is ambiguity,” says David Morris, research director for the food and beverage division of Mintel International, which uses per-person check averages to help define the lines between categories. Whereas he sees an average customer spend $5 to $5.25 at quick-serves, Morris says, at fast-casual establishments the average is about $7.50.

Industry researchers cope with the confusion by selecting a sample of concepts, sized anywhere from 25 to 100 names. For its research, Mintel identified 24 concepts as fast-casual, based on a set of guidelines developed internally, and created market data for those chains. Among those fast-casual chains, which included concepts such as Qdoba, Chipotle, Panera, and Cosi, the firm measured revenue growth from 2004 to 2006 of 35 percent. “That kind of compound annual growth rate,” Morris says, “is superb for the restaurant industry.”

The National Restaurant Association (NRA) released its 2008 Restaurant Industry Forecast with no mention of the fast-casual segment—instead using its longstanding eating-place breakdowns: full-service restaurants; limited-service (quick-service) restaurants; cafeterias/grill buffets/buffets, social caterers; and snack and nonalcoholic beverage bars. Similarly, NPD Food Group breaks its restaurant traffic studies into the larger, more traditional categories: independents, quick-serve, casual dining, and fine dining.

On the consumer side, Zagat last year released its “Fast-Food Chains Survey,” which ranked 24 of the largest quick-serve chains based on consumer opinions. In the end, Zagat’s overall awards ranked Chipotle and Panera, two of the most widely acknowledged fast-casual concepts, in the top five overall alongside Chick-fil-A, Wendy’s, and Sonic. Zagat’s report bills Chipotle as “the new generation of fast food” and says Panera offers “fast food with class,” without using the term “fast casual.”

For its part, Technomic does not try to tally total fast-casual units. “Because we have not been tracking the independent fast-casual restaurants, it is too difficult to estimate the size of units in the market,” Tristano says. “In addition, new restaurants are opening frequently and many traditional quick-serve concepts are converting to a fast-casual format.”

Certainly, Tristano says, anyone who wants to count fast-casual units has to come up with some specific definitions and parameters. Then, he adds, there might be guidelines, but not every chain has to incorporate all 10 guidelines. He cites Chicago-based Potbelly Sandwich Works, which emphasizes menu variety and quality, but where sandwich prices hover below the $5 mark. “Even with a pop on the side, you’re still not at the $8 or $9 level that would put you at Technomic’s fast-casual check average,” he says. (The Potbelly Web site refers to the concept as a “unique neighborhood sandwich joint.”) Category competitor Firehouse Subs features a décor that’s themed, though not upscale, but the service does not feature interactivity. “So Firehouse has a strong argument for being fast-casual,” Tristano says, “but then so does a concept like Quiznos and Subway.”

And what to make of quick-serve chains that are transitioning to something resembling a fast-casual? At what point in the process does the company get to take on that coveted fast-casual name tag—with its connotations of quality and growth? Six-hundred-unit Captain D’s Seafood is one concept making such a transition, starting with restaurants in its home region, the greater Nashville area. Under the leadership of President David Head, the process will take up to five years. Captain D’s is installing upscale interiors, adding Wi-Fi service, and expanding the menu with the addition of grilled items like Alaskan salmon, tilapia, farm-raised catfish, and shrimp skewers. Mediterranean-influenced pasta dishes such as Zesty Shrimp Scampi, Creamy Shrimp Alfredo, and Classic Chicken Parmesan give guests savory nonfried options.

Tristano at Technomic says he recently visited a Captain D’s Seafood Kitchen in Alabama. “Absolutely, it fits into fast-casual in terms of things like price, the upscale factor, the menu,” he says of the evolving concept. But that doesn’t mean it makes his list of fast-casual concepts. “Over time,” he says, “you have to look at how many units are converted and where do they stand [in the process].”

Take, as another example, the DQ Grill & Chill concept, which was launched in 2001 and today accounts for some 10 percent of the Dairy Queen chain. “Unless we start to break out the Grill & Chill from the rest of the Dairy Queen chain [for the fast-casual rankings], Dairy Queen can’t fall under fast-casual,” Tristano says. “I think a concept would have to be at least more than 50 percent converted.”


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