Are Fast Casuals in Trouble?

Once considered the future of dining, fast casual restaurants launched in the ’90s and enjoyed steady growth until a recent slowdown. Marrying the convenience of fast food with the more comfortable atmosphere of a casual sit-down restaurant, fast casuals appealed to Millennials wanting a pleasant experience without tipping or table service. It’s also been a great marketplace for healthier ingredients than were generally found at fast food establishments. Restaurants like Chipotle and Panera capitalized on consumer demand for fresh and “clean” menu items, and these differentiators contributed to growth in the fast casual market. But as sales growth has slowed to 6-8% (versus 10-11% through the first half of this decade), are fast casuals in trouble? What’s next for this industry segment?

Fast casuals are still popular with loyal consumers

Customers who patronize fast casuals are very loyal—Millennials in particular visit them frequently, with up to 10% dining daily! Over 60% of patrons say they love the food at their favorite fast casuals, and it is by far the attribute that keeps them coming back. Over 30% of all fast casual visitors claim they visit more now than a year ago, while those cutting back on their visits make up only about 13%.

Loyal customers and sales growth at 2/3 of stores has fast casual operators optimistic for even greater growth this year, some even predicting much higher revenue.

Industry complications

Even with optimism and customer satisfaction, it’s undeniable that fast casuals face threats—both internal and external. Early explosive growth of the segment was bound to slow as the marketplace became saturated. And the successes of pioneers led to a much more crowded landscape as new restaurants popped up, embracing the format.

As the novelty wore off, some customers migrated back to other restaurant types, including mom-and-pop restaurants featuring comfort foods, and even fast food restaurants (and their lower prices). Quick service/fast food restaurants have also learned from the growth of fast casuals and made changes to their ingredients, menu items, and even the atmosphere of their dining rooms. These efforts have been rewarded by winning back customers who now feel they can get comparable meals and experience while saving some cash.

Staying competitive

Fast casuals are already making consumers happy with their food, so remaining competitive and reclaiming growth requires improvements in other areas, including the experience and their brand narrative. Only a handful of fast casual brands have adopted “clean” ingredients, so this presents a great opportunity for more restaurants to embrace what customers are already asking for—and then to make that part of their narrative. Healthier ingredients (and transparency about them) will bring in customers who value quality over price point.

Fast casuals can also often be more agile than their competitors when it comes to embracing new trends in cuisines, ingredients, sourcing, and even the customer ordering/payment experience. As these types of restaurants keep an eye on food trends at large, they’ll be able to adapt and adopt more efficiently and effectively.

Change will likely come to the fast casual segment, but it’s not going away any time soon. In fact, successful companies and franchises will be the ones that pivot and perhaps introduce a new and improved version of fast casual that will take the marketplace by storm once again.

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