Why Fast Casual Restaurant Chains Are Winning

Quick-service and full-service chains are fighting back, but the hybrid has the momentum.

By Scott Hume, Editor-in-Chief -- Restaurants & Institutions, 9/1/2007

Chicken sandwiches from the category leaders: McDonald’s Crispy Chicken Ranch BLT... ...Panera Bread’s Tuscan Chicken on Rosemary-Onion Focaccia... ...and Applebee’s Neighborhood Grill & Bar’s Italian Chicken & Portobello Sandwich.

When executives of Captain D’s Seafood gathered in Donelson, Tenn., last year to cut the ribbon opening the first of the Captain D’s Seafood Kitchen units, the event signified more than the Nashville, Tenn.-based quick-service chain’s intent to make its restaurants and menu more contemporary. It also symbolized the quick-service segment’s collective need to cut ties with its past and catch up with the marketplace.

Shifts in consumer expectations and desires are what spurred the creation of fast-casual concepts, the restaurants that blend the service speed of quick-service restaurants (QSRs) with the food quality and ambience of casual-dining brands. Consumers eat away from home more often and want new places to go. They’re more health- and quality-conscious when they decide what they want to eat and what they want to feed their children. Expectations about décor and overall dining experiences are higher. Older consumers especially have more money than time to spend on prepared foods.

Those same consumer shifts are driving fast casual’s continued growth. In less than a decade, fast casual has established itself as a muscular middle power between the categories that flank it. As the consumer lifestyles, perceptions and dining behaviors that brought fast casual to life become even more entrenched, fast casual is winning the battle for diners’ time and dollars.

"It has been very interesting to see fast casual evolve," says Tom Cook, principal with Westport, Conn.-based consultancy King-Casey Inc., which in 2001 conducted one of the first trend-spotting research studies about the emerging fast-casual category. "When we did our study, fast casual was just an industry trade term. We had to ask consumers who they thought was in this category.

"What’s fascinating is that no names on that list are chains that are in the category now. People mentioned Bennigan’s, Chili’s or [the downsized] Chili’s Too and California Pizza Kitchen. It was more casual-dining players that were coming up in their answers on who was in fast casual. Now we’ve got a distinct new category with many new names."

What consumers were sure about, however, was what they were looking for from fast-casual restaurants. "They came up with many of the same [attributes] that are important today," Cook says. "Higher food quality, menu variety, freshness, healthier foods, and all at an affordable price. Another thing that was important was atmosphere. Consumers liked a pleasant décor: padded chairs, carpeting and background music. And these are many of the things you see today in what has become fast casual."

Time for a Change

Fast casual largely remains an industry term, but what it represents is quite distinct and tangible for diners.

"Sometimes we [in the industry] fool ourselves into thinking the whole world knows what fast casual is," says Seth Salzman, senior vice president for Atlanta-based Raving Brands, whose fast-casual brands include Moe’s Southwest Grill and Doc Green’s Gourmet Salads.

"I think what fast casual has become to the consumer is, ‘This is a place I can go where I don’t have the hassles and time for a casual-dining restaurant, where I may have to wait for a table, be seated, get waited on and pay the extra money for a gratuity,’" he explains. "And it’s not fast food, which may not have as attentive or friendly service, or [have] different quality food. Fast casual has fallen very well in between where we’re able to provide consumers the speed and efficiency that they appreciate from a QSR with the food quality and service quality and environment that they like from casual dining."

Speed and food quality are commonly acknowledged as fast casual’s most important consumer assets, though which of the two holds the stronger appeal is debatable. King-Casey’s Cook believes time has become more valuable than the $2 or $3 difference between average QSR and fast-casual meals. Mike Lassiter, president of Atlanta-based Rising Roll Gourmet, a 13-store sandwich-cafe chain, says fast casual "really has defined itself with the quality of product, not so much on fast service." He adds: "Demographic shifts are very important for the growth of fast casual. Baby boomers, who are the largest population segment, will pay for quality products. Behind them you have Gen X, and they, too, understand quality."

Tony Walker, COO of the Denver-based Spicy Pickle chain, believes fast casual’s higher food quality has created a new customer market, not just enticed consumers to trade up from QSRs or down from casual dining. "It’s a question of frequency," he says. "Fast casual is drawing customers who maybe went to restaurants one or two times a month before but now are coming three to five times. They’re looking for value that they didn’t see before and healthier foods, but they also need to get in and out."

"My guests are not the same people going to McDonald’s for a salad," says Jeff Levine, CEO of the Margate, Fla.-based Salad Creations fast-casual chain. "We have salad chefs who dress in chefs’ whites. We make a salad fresh in front of the customer with scratch-made dressings. [Our customers] know they don’t get that in a salad from a burger or pizza place."

The fast-casual category’s relative youth also is one of its strengths. The five largest QSR chains (McDonald’s, KFC, Burger King, Subway and Wendy’s) have been around an average of 48 years.

"People got bored with the mature brands," says Gary Beisler, CEO of Wheat Ridge, Colo.-based Qdoba Mexican Grill, a 10-year-old concept with nearly 400 locations. "Consumers are more open to new and different flavors and tastes. They want freshness."

What’s Next?

Where fast casual clearly has a lucrative edge over QSRs and casual dining is in catering for home parties or office meetings (see "Just What the Doctor Ordered" on p. 48). Rising Roll Gourmet’s Lassiter says that some of the chain’s locations do more off-site than in-store business.

"We see a lot of opportunity in catering for some of our concepts," says Raving Brands’ Salzman. "In fast casual, you’ve got to stay in a smaller [unit] footprint, maybe 2,000 to 3,000 square feet max, but you want to drive more traffic into your restaurants. But you have 85 or 90 seats, and at some point that’s all you can have. How do you increase sales and year-over-year comps? It’s through catering."

Spicy Pickle is rolling out a revised and expanded catering program to all of its units. One important change, says Walker, has been the creation of new packaging. "Presentation is important," he says. "Mom-and-pop places would wrap a sandwich in foil, and that was OK then, but not now. If you’re at a meeting and you get a box lunch where the box looks sharp and the food is amazing, it creates a positive mindset. The company looks great, we look great and the customer calls us again."

While fast casual chases those opportunities, QSR and casual-dining concepts haven’t idly watched their customer bases decline. The Captain D’s Seafood Kitchen prototype and menu of grilled rather than fried fish is one example of how QSRs are responding. Casual-dining chains’ development of carryout programs, fast-lunch guarantees and lower-price and higher-quality entrées indicates how that category is fighting back.

But can QSRs and casual dining regain customers they are losing? "It’s a great question—I’m sure they’re all hoping they can, and I guess we’ll see as more attempt to do it," says Raving Brands’ Salzman. "I think there’s a percentage of customers that [QSR and casual] just won’t be able to get back."

Cook hypothesizes that casual-dining concepts will adopt Minneapolis-based Buffalo Wild Wings Grill & Bar’s hybrid service strategy and offer diners the choice of full or counter service. QSRs may have a tougher time, because as they upgrade their menus, they face two difficulties, Salzman says. "One is getting people to believe that and to try [new menu items]," he says. "The second is not giving up their core customers. If you say we’ve got new, better-quality food, your core customer says, ‘Well, what is this that I’ve been getting?’"

If that happens, fast casual wins again.