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.”
Another confounding factor is the casual-dining companies that have created brand extensions to reach into quick-serve territory—concepts such as California Pizza Kitchen’s CPK ASAP and Don Pablo’s Pablos’s Fajita Grill. Under which label should those units fall? Sometimes a factor as simple as accounting calls the play. For Yum! Brands, which reports blended results for its three concepts, Technomic ended up lumping Pizza Hut in with its sister companies Taco Bell and KFC, even though Pizza Hut provides traditional table service.
As he talks about the Pizza Hut designation, Tristano sighs faintly. “At what point,” he asks, “does it all blur so much that you just put it back into limited [quick] service and forget about it?”
The Glow of Fast-Casual
To forget about it would be to dismiss the intense cachet that the fast-casual label carries today. The segment enjoys the glow of double-digit annual sales growth, outstripping quick-service and casual dining in performance. Fast-casual menus tout premium ingredients and taste profiles, which translate to consumers as a healthier buy, worth the slightly higher price point. In a Mintel survey, the majority of respondents said they felt food at fast-casual restaurants was healthier than quick-serve food.
Those positive attributes can make fast-casual concepts an easier sell to potential franchisees. Franchise Gator has a “Quick Casual” category, including such concepts as California Tortilla, which describes itself as “a fast growing, fast-casual Mexican restaurant,” and Green Tango, a salad concept that says it “is part of the explosion of fast-casual restaurants in the United States.”
The fast-casual arena is even attracting investments from celebrity chefs, something that historically occurred more often in casual dining. Recently, household names like Bobby Flay, Rick Bayless, and Wolfgang Puck have invested in fast-casual operations, attracted to the blend of menu flexibility and economics the segment can offer. Fast-casual menus are fitting places to tout all-natural, locally sourced, and organic ingredients, and to do so with a verbal flourish—after all, Panera builds its Smokehouse Turkey sandwich on “artisan Three-Cheese Bread.” Fast-casual menus also feature a wider, more daring range of ethnic fare, which gives chefs and consumers the opportunity to try new tastes.
Celebrity chefs appreciate the latitude within the segment, says Morris at Mintel International, which named the incursion of celebrity chefs into fast-casual one of its “Eight for ’08” trends. “It’s not an entirely chain-driven segment,” Morris says. “Whereas it’s very hard for large conglomerates to experiment [with menus] on a daily basis, independents can do that. We’re seeing celebrity chefs gravitate to lower-cost formats, bringing things that draw from the fine-dining realm. There’s more flexibility, yet it’s still about ambience and price point.” And once the larger chains see nascent trends take hold among consumers, they’re more likely to adopt them, Morris adds, thus the appearance of adventurous dishes like McDonald’s Asian Chicken Salad.
On the Ground Today
The fast-casual label and its intense cachet are the products of an evolution that began in the early 1990s and picked up speed around 1997. The earliest terms describing the intersection of quick-service and casual dining included “premium fast-serve,” used to describe early fast-casual concepts like the now defunct Wrap Works. Around 1997, Technomic coined the term “quick casual” based on trends the company observed during a major study of home-meal replacement and its morphing into convenient meal solutions, Tristano says. At that time, he says, the firm’s quick-casual term referred to a casual-dining–style setting, with quick-serve–style food. For a while, the terms co-existed, until the firm adopted “fast-casual” because it was widely accepted.
Today the fast-casual label represents a brass ring to many concepts. As with others whose work involves categorizing, labeling, and ranking the restaurant world, Morris and Tristano say they frequently field calls and emails from executives of companies that want to be included on the firms’ listings of fast-casual concepts and trends.
At the same time, some fast-casual leaders deny that category competition affects their thinking. “The top line on all this, however,” says Chipotle spokesman Chris Arnold, “is that Chipotle doesn’t really think of ourselves in terms of categories like ‘fast food’ or ‘fast-casual.’”
One point the restaurant operators at Technomic’s Orange County meeting were able to agree on was to allow consumers to help define what the term “fast-casual” means. That means paying close attention to the kinds of consumers who frequent fast-casual eateries, what kinds of dishes they order, and how much they are willing to spend.
Among consumers, “fast-casual” might still be a notion rather than a firm concept. Researchers who survey consumers find they must provide not only a thorough definition, but also multiple examples of concept names—as many as 20 of them—before consumers understand the sort of restaurant under study. The vast majority of respondents have never heard the term “fast-casual,” says Mintel’s Morris. “They simply view it as more upscale fast food,” he says, “or they have a brand awareness of particular restaurants.”
Yet consumer media are picking up on the term. “Colorado customers eat up fast-casual concept,” announced Colorado Springs NBC affiliate KOAA, leading into a recent story on the growing Spicy Pickle concept. “Fast-casual Mexican now the hottest flavor,” trumpeted the headline on an Albany, New York, Times Union story about the spate of independent and chain taquerias opening in the area. And Alabama’s Huntsville Times used “fast-casual,” without further explanation, to describe Frizzle’s, a new independent concept opening this spring.
In covering Captain D’s transition, a business reporter for The Tennessean, a Nashville-based newspaper asked the company’s president David Head directly: “Are you trying to move Captain D’s from a quick-serve chain to fast-casual (the industry term for chains such as Panera Bread)?” Head responded, “We have a drive-thru, so in any way, shape, or form, we’re probably going to be categorized as a [quick-service concept], but when we built our prototypes … 90 percent of the guests view us as being more than an everyday fast-food place.”
Several questions later, Head describes the new Captain D’s prototype this way: “It’s almost a casual-dining restaurant, if you will.”
Head and other Captain D’s leaders might not be aiming for the fast-casual label, but the shrinking gap between “more than an everyday fast-food place” and “almost a casual-dining restaurant” just makes the territory more vexing for anyone looking for hard numbers.
The Evolution Continues
According to the NRA’s 2008 industry outlook, the consumer trends that are buoying fast-casual success should continue to drive the segment for at least the next year. Nearly a third of operators say their customers are looking for a wider range of food choices from restaurants, while 19 percent say customers are seeking healthy alternatives. About one in ten quick-serve operators say the top trend this year is toward improved food quality.
As for the consumers themselves, three out of four adults told NRA researchers they are trying to eat healthier in restaurants now than they were two years ago. Given the ability of fast-casual companies to develop, source, and promote more healthy-sounding menu items, served freshly prepared in settings that let the customer have a say, the segment is well positioned for unit growth.
Yet when it comes to technical definitions of fast casual—who’s in, who’s out, and who gets to cross the lines—industry watchers say those decisions fall not to consumers, but to restaurant leaders. “Bottom line, these are industry terms,” says Morris. “They are ways for the industry to compartmentalize and make sense of the vast array of options out there.” As a result, he says, definitions and terminology will continue to change over time.
“Clearly, there are quite a few perspectives on the topic,” says Tristano. “Opinions vary, but ultimately, we believe the clarification is within the industry, versus at the consumer’s perception.”
The Numbers We Do Know
A look at some numbers that help define fast-casual:
14 Percent annual growth each of the past two years among fast-casual concepts, as measured by Technomic Inc. Mintel pegs the number at about 16 percent. Either way, the rate compares to roughly 6 percent for the U.S. chain restaurant industry at large.
6 Service time goal for Red Brick Pizza, in minutes. Fast-casual concepts differentiate themselves from casual-dining concepts by serving freshly prepared food relatively quickly.
3 Part of a Chipotle tagline—in full, “three things, thousands of ways.” The Fresh Mex fast-casual leader uses the line to tout the reach of its simple menu.
46 Percentage of quick-serve operators who say they plan to allocate a larger percentage of their budget this year to remodeling. Many of today’s quick-serve remodels involve creating upscale interiors that can better compete with fast-casual settings.
5 Percentage of consumers who are aware of the term “fast-casual.”*
8 Months Wendy’s spent researching the premium food principles behind its recent advertising campaign, with the tagline, “It’s waaaay better than fast food. It’s Wendy’s.” Even the concepts themselves are blurring the lines between quick-serve and fast-casual, in response to consumer demands for higher-quality foods at price points and service times below those of casual dining.
14 Percentage of Web-based consumer survey respondents who told Mintel researchers they still did not understand what fast-casual means—even after a detailed definition and multiple examples.