Fast casual has been the fastest-growing restaurant segment in the past 20 years.
William Blair analyst Sharon Zackfia isn’t surprised that these concepts are performing well, but she is surprised by how they are gaining sales.
“When we started to hear companies like Chipotle talk about trade up with a more cost-conscious consumer despite not really participating in any of the value wars, that’s interesting. We really haven’t heard that before,” Zackfia says.
In more traditional price-sensitive environments, casual-dining customers trade down to fast casual, and fast casual trades down to QSR, which typically holds up the best. That wasn’t the case in 2024.
In hindsight, traditional fast food took a lot of price increases without adding value to the guest in terms of a better product, interesting innovation, better service levels, or an improved ambiance, Zackfia says. Consumers simply pushed back.
“I think the consumer was like, for $1 or $2 more I can have this, which is a bigger portion that’s customized exactly how I like it, with better quality ingredients,” she says. “The trade down from casual dining isn’t unusual. We’ve been seeing that for a long time in fast casual, but that trade up I think was very interesting. And when you heard companies talk about it coming from lower household income levels, again, very interesting.”
One theory in the investment community was that companies like Shake Shack would be disproportionately affected. The chain sells premium burgers, and if it wasn’t going to get involved in the dollar wars, the conclusion is that the fast casual’s financials would be harmed. The reality, Zackfia says, is that Shake Shack’s occasion is different from a fast-food burger.
As she puts it, “You’re either going to a drive-thru or you’re not.” Granted, Shake Shack does have a contingent of drive-thru restaurants in its footprint, but not enough to be associated with the channel like your typical McDonald’s, Burger King, and Wendy’s outlets.
The biggest conclusion was that value isn’t just about price.
“The companies that had the lowest price points weren’t necessarily the winners last year,” Zackfia says.
Research firm InMarket, which publishes its Fast-Casual Restaurant Fidelity Index every quarter, believes fast casuals are uniquely positioned to win during the value wars because they have the perfect balance of value and enhanced quality. The company says winners will be those who emphasize premium offerings. It has four main recommendations for fast casual: lean into quality and value, regularly update menus with new items, engage with diners likely to frequent your restaurants, and measure the effectiveness of your media.
In Q4, Shake Shack ranked highest on the Fidelity Index, a tool designed to measure consumer loyalty to brands. The chain offered a free burger with any $10 purchase leading up to Christmas Eve and brought back fan-favorite holiday-themed milkshakes in November—the Chocolate Yule Log Shake, Apple Cider Donut Shake, and Christmas Cookie Shake. Additionally, after releasing “Worth It,” a new marketing campaign highlighting premium ingredients, the chain launched “Worth It Wednesday,” which offered a promotional or free menu item every week from October through December.
“I think Shake Shack’s formula is very much aligned to what we’re seeing in the industry across all verticals now. I think there’s been—obviously because of inflation and increased pricing—consumers moving to brands that give more and they pay less for, so more bang for the buck,” says Mike Della Penna, InMarket’s chief strategy officer. “And I think when you look at that category in general, that value that consumers are seeking is very, very strong in this particular category as well … Speed, quality, and experience also are very highly rated when we look at the attributes and ask consumers what’s important to them. And I think [Shake Shack has] done a really good job of having friendly service and providing a flavorful high-quality product that then resulted in what you see in the report—a very overindexed appreciation for that brand in particular in its category.”
Shake Shack CEO Rob Lynch says the fast-casual segment is at a pivotal moment where adaptability to changing consumer preferences is crucial. He added that economic factors are leading guests to seek affordable dining options, which benefits fast casuals that offer quality at reasonable prices. Shake Shack prides itself on “using only the best ingredients at a price point that delivers real value,” according to the CEO.
To his point, from March 3 to March 15, Shake Shack offered its first combo meal featuring the Chicken Shack, fries, and a small drink for $9.99.
Menu innovation is an integral part of value too.
“Our culinary team is always experimenting with new flavors and ingredients to create exciting limited-time offerings that make Shake Shack stand out amongst others in the fast-casual segment, including our recent Black Truffle menu. That menu has become a fan favorite, performing better than almost any other LTO in our history when it was on the menu this winter,” Lynch says. “Our innovation process is data-driven and guest-focused, leveraging insights, feedback, and testing to ensure every new offering meets our standards and provides the best guest experience.”
The chain is also noticing that more restaurants are focusing on operations and investment in technology to boost kitchen productivity and reduce wait times.
Shake Shack is doing the same by establishing a kitchen innovation lab in Atlanta this year to test new equipment and processes, to cut wait times by two minutes or more.
“Shake Shack was built on fine-dining principles, and we bring that same commitment to quality and hospitality every day,” Lynch says. “As we got our start in a public park, we’re continually focused on making great food accessible to all while strengthening the communities we serve.”
Chipotle CFO Adam Rymer says higher prices have led to declining transactions for many restaurants, sparking the value wars among QSRs. He views it as an advantage that fast casuals avoid this back-and-forth and instead focus on high-quality meals and a better dining experience.
As guests become more cautious with spending, fast casuals must prioritize improved service to justify their price points and retain and attract consumers. He expects transaction challenges to persist, making earning customer loyalty a paramount concern.
The brand’s most common entrée is a chicken burrito or chicken bowl, and it’s still in the mid-$9 range on average across the country, similar to QSR pricing outside of the short-term price-pointed deals.
“First and foremost, I think our culinary experience really resonates with people right now, and I think it’s everything from the flavor profile to the fact that as you see in a lot of our advertisements and things like that, the way we go about classic cooking techniques, the fact that we’ve got only 53 real ingredients, each of which you will recognize and be able to buy at the grocery store and pronounce in all of our food,” Rymer says. “We really lean in on all of those and still offer tremendous value from a price point standpoint. I think Chipotle has been able to really find that accessible price point mixed in with the premium ingredients.”
The executive says pricing is a last resort for maintaining margins; Chipotle eyes cost measures and strategic supplier partnerships instead. The chain’s sourcing practices focus on high-quality, ethically produced ingredients, and the company works closely with suppliers to mitigate cost pressures.
Despite industry-wide inflation, Chipotle has managed to keep its price increases below the restaurant industry average over the past decade. While overall restaurant prices have risen by about 50 percent, Chipotle’s has only increased by approximately 40 percent.
“I’ve been with Chipotle a really long time, so I was able to work with [founder Steve Ells] in the early days. And one of our big mantras back then was change the way people think about and eat fast food,” Rymer says. “And one of the things that he always had a key eye on was not only did he want to have this premium experience, but it’s got to be at a really accessible price point, otherwise you’re not changing the way people think of or eat fast food. You can’t offer a premium experience at a premium price point. You have to offer a premium experience at a very accessible price point. And so that’s something that really sticks with us today, especially around our whole purpose of cultivating a better world to ensure that we continue to find that balance.”
Matt Harding, Piada Italian Street Food’s chief concept officer, says socioeconomic and political uncertainties have made customers more cautious with spending. Additionally, the winter season compounded challenges for restaurants, with consumers displaying a “malaise” that impacted traffic.
Despite these pressures, fast casual has performed better than casual dining due to its lower cost structure and streamlined operations, Harding says.
Harding notes that consumers are busier than ever post-pandemic, leading to increased demand for off-premises dining options. Piada has seen significant traffic growth in these channels, especially at dinner. Many customers order online rather than through apps, often from work or while planning other activities.
On pricing, the chain prefers a cautious approach. Similar to Chipotle, Piada focuses on absorbing costs through efficiencies rather than passing them directly to customers. Harding also emphasizes the fast casual’s streamlined model—without servers, alcohol sales, or extensive staff—allows it to manage costs more effectively than traditional casual dining.
“I think everybody right now is really ready to take this year on the chin in terms of giving less price to the guests and trying to figure out where to get it somewhere else because there’s a natural point where I think guests are right now,” Harding says. “And when we look at, hey, what would it look like with 5 cents more on this or 2 cents more on this, it’s a real consternation point for us. We’ve said that it’s inevitable that all restaurants need to look at pricing from time to time, but that’s not going to be a strategy that is necessarily in our pocket for the first half of the year.”
Harding believes leading fast-casual brands will focus on boosting quality and value rather than relying heavily on limited-time offers. He expects these brands to innovate by improving ingredient quality and product offerings to deliver better value to customers.
“The operators that are in the space are very smart, they’re very skilled, they’re awesome brands, they’re going to figure out a way to get what they need out of the business without always taking it to the guest,” Harding says. “And when you look at how business is run, the last place you should look is at the guest because everybody’s going through car payments and electric bills and gas bills. And so to be a major player, you have to make the products worth the value, and I think that you’ll see the best brands out there up their value.
