A decade ago, fast-casual concepts were still novel enough that their very entry into a market could draw long lines and buzz. But as the category has matured—and an onslaught of competitors has emerged to contend for Americans’ dining dollars—customers now have the luxury of being particularly choosy when frequenting fast-casual restaurants.

It’s left some to wonder whether fast casual has reached a saturation point—whether its tremendous growth has finally found its ceiling.

“It is a harder space to play in these days, no doubt, because there is more competition,” says Zach Flanzman, chief strategy officer of Chicago’s Brown Bag Seafood Co. “Ten years ago, just by merit of being a fast-casual player, you had tail winds at your back to help you grow and succeed.”

This new reality doesn’t spell doom for the category, Flanzman says. But it does require operators to offer a strong differentiator and increasingly seek operational excellence. The four-unit Brown Bag, which offers cooked seafood options, recently opened its fifth Windy City location.

In the coming years, Flanzman expects to see continued reshuffling in the space. “I think we might be entering an environment where we shouldn’t be surprised when some restaurants struggle,” he says. “It’s a higher bar.”

There have been red flags in fast casual ever since Chipotle’s E. coli and norovirus outbreaks in 2015. But those red flags became more apparent in 2018. Upscale hoagie chain Taylor Gourmet abruptly closed all 19 of its stores last September after an investor pulled funding. Two months later, Honeygrow announced plans to close five stores and put the brakes on plans for future expansion.

Those closures came amid a cool-down in the overall restaurant space. Market research firm The NPD Group counted 660,755 total U.S. restaurants in spring 2018, a 1 percent decrease in the unit count over the previous year.

Fast casual still remains an industry leader. It was the only quick-service segment to post year-over-year traffic growth, according to NPD research. But that growth has slowed as unit expansions have decelerated; while fast casual visits grew by 8 percent in 2014 and 2015, growth fell to 3 percent in the year ending December 2018, according to NPD data.

Experts say the changing landscape means fast-casual operators must fine-tune every part of their offering, from the concept itself to technology implementation to the in-store experience.

With the maturation of fast casual, Flanzman says, customers naturally sort fast-casual concepts into winners and losers. He believes Brown Bag is well positioned to stand out in the ever-crowded space. It offers a sustainable, nutritious protein source customers can feel good about eating multiple times per week, he says. Though he’s undeterred by closures or contractions from other brands, they do send a clear message.

“I really root for all of them, but I also think it’s a good reminder that we better be giving everyone—everyone who walks in here, everyone who orders delivery, everyone who caters—a 10 out of 10 experience,” Flanzman says. “Maybe 10 years ago they would have come back with an eight out of 10 experience. But today there are too many 10 out of 10 experiences.”

Moving forward, a fast-casual chain must provide a compelling differentiator to survive, says Gary Stibel, founder and CEO of the New England Consulting Group. Brands can separate themselves through their technology platforms, their food, or their experience.

“But it needs to be a differentiator,” Stibel says. “The world doesn’t need another premium submarine sandwich chain. It just doesn’t. We’ve already got plenty of them.”

He says aggressive convenience and grocery stores continue to blur the lines between quick service, fast casual, and casual dining. In the coming years, he expects some fast-casual chains to push beyond regional dominance and build national footprints.

Yet even with projected growth, Stibel cautions that most fast casuals shouldn’t expect to develop long-term, exclusive relationships with customers the way some blue-chip fast-food concepts have. Young diners who gravitate toward the fast-casual segment prefer diversity in their dining habits—mirroring the way they consume a wide variety of craft beers rather than a single mainstay.

“You can remain part of that guest’s consideration set,” he says. But if you try to create an exclusive guest, you’re kidding yourself.”

Brands must carefully craft their individual concepts moving forward. But execution will matter even more, says Todd Madlener, vice president of operations for the seven-unit Coolgreens.

Madlener says he’s confident in Coolgreens’ position as a healthy choice in the market. Its wider menu of hot flatbreads, hot sandwiches, grain bowls, and wraps also helps it stand out from other salad-centric concepts. But the chain is particularly committed to team training and building a positive culture in every store.

“You go back 10 years ago and there was no fast-casual pizza. And now you see this complete saturation in the market.” — Todd Madlener, vice president of operations for Coolgreens.

“The company with the most units isn’t necessarily going to be the one that survives,” he says. “It’s going to be who can provide the best-quality food with the best team and culture. That’s who’s going to survive.”

Madlener says no brand has emerged as the coast-to-coast leader in the salad category. To earn that title, Coolgreens continues studying the success of fast-casual pizza chains that have mushroomed across the country.

“You go back 10 years ago and there was no fast-casual pizza,” he says. “And now you see this complete saturation in the market. You’ve got Blaze, MOD, SPIN!, Pie Five. We could go on and on about how many there are.”

In the meantime, he expects some consolidation across the wider fast-casual market as regional chains continue expansion plans and seek to gain coast-to-coast resonance.

“I think you’ll eventually see acquisitions,” Madlener says. “And unfortunately, I think you’re going to see some very good regional concepts, as they try to grow beyond their home territory, that the brand won’t translate. We believe we’re going to see some translation issues.”

The fast-casual segment has already seen some acquisition movement in recent months.

In August, popular Mediterranean startup CAVA acquired 250-plus-unit competitor Zoës Kitchen with financial backing from former Panera Bread CEO and founder Ron Shaich. In October, Elite Restaurant Group scooped up Noon Mediterranean, formerly known as VERTS, which had filed for bankruptcy. Elite, which previously acquired Slater’s 50/50, Daphne’s California Greek, and Patxi’s Pizza, announced plans to rebrand the Mediterranean concept under its Daphne’s banner.

In February, the Lemonade Restaurant Group and Modern Market Eatery fast-casual chains announced they would merge into Modern Restaurant Concepts. The two concepts already had a common investor in Butterfly, a Los Angeles–based private equity firm, but executives believed a closer affiliation would improve their respective competitiveness.

“We thought there could be a massive benefit in coming together,” says Anthony Pigliacampo, co-CEO of the newly formed company.

Modern Restaurant Concepts now touts a combined 58 restaurants in 10 markets, including Denver, Los Angeles, and Washington, D.C. While both chains share a focus on healthy eating, they will continue to operate independently.

Pigliacampo says it’s increasingly difficult for smaller operations to compete with the largest players in the restaurant space. A larger scale will allow Lemonade and Modern Market Eatery to more easily source specialty ingredients like GMO-free foods. And the larger company should attract more favorable pricing as both restaurants continue to invest in technology systems like third-party delivery applications.

“That’s the sort of thing that, as a 60-unit concept, we can make larger investments than either brand could make individually,” Pigliacampo says. “It’s hard to overemphasize how important those things are.”

The restaurant space has grown “dramatically more competitive” over the last few years, Pigliacampo says, as new concepts have come online and existing restaurants have improved their operations, menus, and technology.

“There’s no question that the competition for better-for-you food has never been higher,” he says. “We find this encouraging. I believe that just saying your food is healthy ends up being table stakes at some point. The differentiator is whether your food is healthy and if it’s tasty and something customers want to pay for.”

While he expects some contraction in the space, Pigliacampo predicts fast-casual brands will mostly look to slow down the pace of growth in the face of ever-heightened competition.

“I think you will see a shakeout in the industry at large,” he says. “It would not surprise me if you see a variety of brands backing off from some of the expansion plans they’ve had.”

Saladworks CEO Patrick Sugrue says the marketplace has proliferated in recent years. The restaurant space is overbuilt, he says, with some legacy concepts just “hanging on.” Real estate prices have reached all-time highs, low unemployment is driving up wages, and customers have never had so many options to dine out—or dine in.

“And I think that something’s got to give,” he says. “I would say in general, the restaurant industry, like most retail businesses today, is going through a sea change.”

Sugrue identifies several major undercurrents reshaping the fast-casual industry. First, the consumer market continues to shift its focus away from baby boomers to members of the millennial and Gen Z generations. He says many concepts have abandoned farm-to-table and hyper-local approaches to sourcing in favor of broader and more realistic platforms built on fresh and clean ingredients. At the same time, technology continues its transformational push into the restaurant arena, forcing all brands to upgrade back-of-house platforms as well as mobile-ordering and delivery platforms.

“I don’t think it’s going to be a differentiator,” Sugrue says. “I think it will be a cost of entry.”

The nearly 100-unit Saladworks is laying the groundwork for future success by carefully working to build relationships with the youngest diners. To that end, the chain has expanded its footprint of stores on and near college campuses. Sugrue says Gen Zers exhibit unique dining habits, desiring to have both healthy and indulgent options at their fingertips.

“We call it a flexitarian lifestyle,” he says. “They may choose to go out for a big steak, they may choose to get that great burger, that great pizza with all the toppings, but they balance it—not unlike how you would balance investments in your portfolio.”

Customer Experience, Fast Casual, Restaurant Operations, Story, Brown Bag Seafood, Coolgreens, Lemonade, Modern Market, Saladworks