If you’ve ever been pressed for time for lunch, you’ve probably been to a restaurant that serves food quickly but isn’t quite a fast food establishment. The restaurants I’m talking about have limited or self-serve format, offering made-to-order food that is more gourmet than fast food. They may even have an upscale and modern dÌ©cor.
These restaurants belong to a relatively new restaurant category called fast casual. Emerging just 10 years ago, the category positions itself as a fresh alternative to quick serve restaurants, offering higher quality food and experience. Think Chipotle Mexican Grill, Nando’s or the Panera Bread chain.
Some would argue the consumer doesn’t really know the fast casual category even exists and pins it as either a quick serve restaurant (fast food) or casual dining. Fast casual restaurants do not offer full table service, although their food and prices tend to be closer to casual dining restaurants.
Restaurants have been around for ages, but fast casual establishments tapped into something that satisfies a real customer need. Its success can be attributed to its appeal to busy consumers who appreciate quality food without the time commitment or dent in the pocketbook.
Fast casual is a great example of how new categories can disrupt an industry – even established ones. Popular with the time-starved 18-34 age group, fast casuals accounted for $31 billion in revenue in the US last year, easily outpacing growth in the $660 billion restaurant industry.
What can other emerging categories learn from the fast casual segment? The category provides a good case study on the challenges that any new entrant may have establishing footing in an industry:
Alignment with consumer demands
Consumers are increasingly conscious of what they are eating. Just ask McDonald’s CEO Don Thompson, who was recently publicly grilled by a 9-year old about the fast food giant’s offerings for kids. Consumers consider fast casual offerings healthier than fast food – but as governments and consumer groups continue to push for healthier options, what they perceive as ’healthy’ now may not cut it in the future.
It’s no secret the quick serve category is actively trying to play the nutritional card. Fast food restaurants such as McDonald’s and Burger King have recently introduced healthier food options. Fast casual is better positioned to serve health-conscious consumers, but quick serve restaurants are catching up.
Fast casual restaurants, just like most new categories, need to keep their finger on the pulse and make sure that the products and services that they provide align with what consumers need and want currently and in the future.
Quick serve restaurants have been profitable for a long time because consumers visit these establishments often. Given its price point and lack of drive-thru – a major driver of frequency in the quick serve business – visits are lower among the fast casual segment. It will be interesting to see how fast casual will evolve without this feature and generate higher frequency of visit without looking like a quick serve business and while maintaining our current price point.
To continue growing, any new category will need to figure out how to convince consumers to come back again and again. Brand loyalty is key for new categories such as fast casual in order to remain profitable. Does a loyalty reward model make sense?
Perhaps the biggest challenge for fast casuals is category positioning. Its appeal is due to the fact that it sits right in the middle of sit down and quick serve restaurants. When consumers visit a fast casual restaurant, they expect nutritional food, quick service and a pleasant dining experience.
As a relatively new category in the restaurant industry, fast casual’s positioning is somewhat vulnerable. Many consumers may not necessarily know the difference between quick serve and fast casual restaurants. And as quick serve establishments continue to offer healthier options and improve their food and service quality, the distinction between these two dining options may start to blur.
On the other side of the spectrum, the casual dining category has been showing some signs of rejuvenation, recently beating fast casual in terms of number of visits.
Fast casual and other new categories need to understand their distinctiveness and reinforce that to consumers. What customer need does the fast casual category really fulfill? And how is the new category really different from existing segments of the industry that aren’t leaching into the fast casual space? Any new category will need to figure these questions out and make business decisions that align with customers’ expectations and needs.
To remain profitable in the long term, new entrants such as the fast casual category need to remain close to its customers. Insight communities and other ways of listening to the voice of the customer can help businesses navigate the shifting restaurant industry as their menu, service, experience and positioning evolve.
What do you think is ahead for fast casuals?