Are these fast-casual trends hot or not?
Chains that are too far ahead of their time tend to suffer: think healthy fast food in the 1980s. But with news headlines and industry leaders always talking about the latest new thing, it can be hard to sort the hype from the substance.
After several years of growth, fast casual has risen from a trendy outlier to a fully developed industry mature enough to have trends of its own. Here’s what’s hot and what’s not in the new world of fast casual.
Hot: Side items
“Would you like fries with that?” is the textbook example of an upsell. But from Qdoba (which offers certain extras free of charge) to Five Guys (which proudly touts an ultra-simple back-to-basics menu), fast-casual chains haven’t given themselves much room to pad checks.
As the industry matures, though, side items are becoming a source of growth. Mike Hamra is the CEO of Springfield, Mississippi-based Hamra Enterprises, a franchisee of Panera Bread and Noodles & Company among others. He says side items at Noodles like potstickers and desserts aren’t a big percentage of business, but they’re an expanding one.
“They’re popular because they’re a growing segment of our business.” Hamra says. “I think it gives people another option for coming in.”
John Gordon, principal of the San Diego-based Pacific Management Consulting Group, says side items are a huge opportunity for fast-casual chains. He singles out Scottsdale, Arizona-based Pei Wei as a chain that’s become successful with add-ons in spite of not doing much in this area previously. “I’ve noticed in the last year or so that they have added more side items, like spring rolls,” he said.
Not: Strip malls
In Duluth, Minnesota (population 86,000), the recent arrival of a Chipotle stirred up enough buzz to get lines out the door. But in larger markets, popular fast-casual restaurants have to do more than exist to draw a crowd. Site selection is becoming more important.
“I’ve seen a little bit of a fall-off in terms of fast casual being in a long strip mall,” Gordon says. “There are some areas you might call B or C sites. I’m thinking of a Moe’s Southwest Grill outside of Atlantic City—it’s just way out in the boonies.”
Whether it’s smaller-footprint urban spaces (Panda Express is opening two locations in New York City) or food trucks (Sweeto Burrito operates these in a handful of cities), fast-casual restaurants have had to up their site selection game as the market becomes crowded.
Gordon says a half-mile away from his house, Chipotle and Pei Wei both put stores in a three-box building near a new Target. He says the premium location has spurred business for both stores.
“That’s probably a much more expensive site in terms of rent,” Gordon says. “They’re both doing extraordinarily well. You can see them much better if you’re looking at a group of three businesses in an outbuilding as opposed to 20 or 30.”
Postmates partnered with Chipotle. Munchery is skipping the “restaurant” part to take fast-casual style meals directly from the kitchen to the consumer. Delivery is a hot commodity right now. Third party app-based delivery services cover hundreds of cities, and some fast-casual chains are getting into the game directly.
Austin-based Mama Fu’s Asian House started delivering in 2014, and Panera has recently been expanding its delivery with a series of delivery-focused kitchens with no storefront. The project is still largely under wraps but Hamra says if he were offered the opportunity to buy in, he’d consider it. Catering is a large percentage of his Panera sales and he says he’d be able to grow that further.
“I think there’s room on that runway for more catering,” Hamra says. “I think the bigger question is how do you get it to grow bigger faster?”
Not: Burgers and pizza
Yes, both of these areas are still popular. But the better burger segment has gotten crowded, and while pizza is growing quickly as a segment, the sheer number of competitors like Blaze, Pie Five, Uncle Maddio’s and Pieology mean it’s not exactly a wide-open market anymore.
Instead, future growth is coming from less tapped markets. Asian fast-casual brands like Pei Wei, Panda Express and ShopHouse are aiming for bigger market share.
Michael Haith is the CEO of Teriyaki Madness, a Denver-based franchisor with 20 stores and a plan to grow to 30 by the end of 2015. He says he’s seen both franchisees and customers switching to the brand.
“We see a lot of owners of QSR brands who are coming over to Teriyaki Madness,” Haith says. “Our same-store sales have been double digits for the last six years.
We’re just on the fast track.”
Hot: Healthy flourishes
Jeff Gibbs is a single-unit Potbelly Subs franchisee in Toledo, Ohio, with plans to open a second next spring. He says of all the current trends in fast casual, the most prominent one is healthier meals.
“There’s certainly been a trend for some healthier things,” Gibbs says. “When we opened up four years ago we only had one vegetarian option, now we have several.
We also now do a thin bread. We have also noticed a bit of a change in our drink mix. Less of the traditional sodas and more juices, waters, teas.”
Haith has noticed the same thing. “People are looking for new flavors and healthier food,” he says. “We use real food in our food. That’s something we take great pride in.”
Not: Über-healthy meals
Alisa Kleinmann, the CEO of restaurant events group Industree, worked with Shake Shack to coordinate Fast Casual Explosion, a fall conference in Washington, D.C., that addressed industry trends. She says while many talk about healthy foods, few are executing them successfully.
“I think one of the toughest things that has not been successful in the fast-casual space has been über healthy,” Kleinmann says.
She says that while Sweetgreen has had success in the salad space, Chopt and Mixed Greens have struggled. Energy Kitchen failed to establish a location in D.C. and then closed all nine of its New York stores in 2013. Kleinmann says customers looking for something fast and tasty are generally not thinking about black bean burgers.
“If you’re going to change people’s behaviors, you have to be amazing,” Kleinmann says. “I think that’s a really tough challenge.”