Fast-Casual Restaurants Gobble Up Market Share

January 24, 2012

Fast Casual

Fast-Casual Restaurants Gobble Up Market Share

Fast-food eateries are in the throes of drive-through Darwinism as more upscale upstarts, such as Chipotle Mexican Grill and Panera Bread Co., grab market share from the likes of Taco Bell, Subway and Wendy’s.

Chains that are fancier than fast-food options but cheaper than sit-down alternatives are part of a hybrid sector known as fast-casual that is maturing into one of the food industry’s strongest.

That category is tapping into growing demand for more healthful, specialty foods that are still speedily served and moderately priced. Fast-casual is steadily poaching fast-food customers looking for better quality and sit-down diners seeking cheaper prices, said NPD analyst Bonnie Riggs.

“There’s no end in sight to their growth,” Riggs said. “They’ve delivered on consumers’ value expectations far more than most fast-food places.”

The evolution is happening as the rest of the restaurant industry fights for a shrinking customer base amid a slow economic recovery and high food prices.

Fast-casual is still only a small segment of the industry. But it tripled its market share in roughly the last decade to about 6% of restaurants and is the industry’s only segment to grow in the last five years, analysts said. In 2010, major fast-casual chains pulled in $18.9 billion — a 6% increase, according to research group Technomic.

“This category has essentially blown through the recession without skipping a beat,” said Technomic executive vice president Darren Tristano in a statement.

Formerly known as adult fast food, fast-casual generally includes restaurants that have limited table service and no drive-throughs. They are also often perceived to have higher-end decor, food quality and prices.

But the boundaries are blurring. Eateries such as Carl’s Jr., with its Six Dollar Burger, and foodie-favorite In-N-Out straddle the line between fast-casual and fast food. Drive-throughs are appearing at Panera locations. Some fast-casual chains are experimenting with delivery, usually an option provided by sit-down restaurants.

“We’re going to continue to see more fuzziness in how to define these restaurants,” said Robert L. Sandelman, chief executive of food service research group Sandelman & Associates.

Panera, which has about 1,500 outlets nationwide, is turning in especially impressive numbers. In the third quarter its profit was $28.8 million, up 27% compared with the same period in 2010. In late November, the company’s stock price hit a 52-week high of $143.38.

On days when Rancho Cucamonga resident Jason Seliskar, 38, doesn’t have time to cook, he and his wife swing by Panera.

“We can get in and get out and still have a relatively nice experience,” said the elementary school teacher. “I can walk away without thinking I gave myself a gut bomb and damaged my body.”

Bakery-cafe restaurants, such as Corner Bakery Cafe, are leading the fast-casual charge, analysts said, followed by so-called better-burger chains such as Five Guys, the Counter and the Shake Shack.

Other fast growers include Asian restaurants, noodle shops and Mexican eateries.

Perceived food quality is key to fast-casual’s rise, according to a survey measuring meal quality by the MarketForce research firm. Customers ranked Panera, Chipotle and Five Guys high while pushing fast-food companies Burger King, McDonald’s and Taco Bell to the bottom.

In the same study, fast-casual restaurants also scored among the best for atmosphere, healthful options and eco-friendly business practices.

BurgerFi, a Florida-based chain, and French chain Planetalis, which opened its first U.S. location in downtown Los Angeles this week, have decor made with recycled materials, vegetarian burgers and gourmet options. Chipotle recently released popular advertisements touting family farms and emphasizing sustainable and humane practices.

Fast-casual chains also tend to have distinctive decor, such as the international cafe feel of the Cosi sandwich chain and Pei Wei Asian Diner’s glossy vibe.

“These restaurants offer a more pleasant experience — unlike a fast-food place that’s less clean than you’d like it to be, smelling like grease and small too,” said Jason Moser, restaurant analyst for Motley Fool. “It’s just the evolution of eating out in general.”

Fast-food chains are far from helpless. McDonald’s, for example, continues to see hefty revenue.

“I’m not for a moment suggesting that we want to try to pretend to become a Five Guys or a Smashburger or something like that,” Brolick said on a call with analysts. “But I do believe that there is a significant opportunity in the market for high-quality products that are fresh and made to order.”

Some fast-food chains have already made shifts in that direction.

New advertisements from Burger King, KFC and Taco Bell have switched focus from gimmicky characters and low-price guarantees to lush images and descriptions of fresh ingredients.

“Fast food is going to be making a slow but very methodical change toward healthier eating simply out of necessity, or else they’re going to risk becoming marginalized by fast-casual,” Moser said.

Other companies are expanding their specialty and premium offerings, with McCafe and Angus burger lines from McDonald’s, Artisan Pizza from Domino’s and a Steakhouse burger from Carl’s Jr. White Castle is testing alcohol sales as well as an Asian noodle concept, a barbecue joint and a grilled sandwich shop.

And several fast-food chains are upgrading their looks. Subway has begun opening eco-restaurants with recycled materials and solar panels. Wendy’s has new store prototypes that take design cues from Frank Lloyd Wright and allow patrons to watch their food being prepared.

But it may take more to win back customers such as Pasadena photographer Justin Saiki, 30, who grew up eating fast food but said that “things are different now.”

Now that he’s more health-conscious, he’s at Five Guys about once a week and occasionally at Chipotle, where the food seems fresh instead of “pre-made and sitting on a warmer,” he said.

“It all goes back to quality,” Saiki said. “You just don’t feel as guilty.”

View the full article on Chicago Tribune


Do Customers Care About Calories? M&C Report

January 24, 2012

M&C-June

American consumers generally support menu-labeling legislation, but that doesn’t necessarily mean they’re going to change their dining-out habits.

Menu-labeling legislation is about to become a reality in the United States, and you can be sure the Food Standards Agency and Parliament are paying close attention.

In April, the U.S. Food and Drug Administration issued a proposed set of regulations outlining how chain restaurants and other retail food establishments must post the calorie content of the items they serve. The FDA has been seeking comments on their proposal, and the legislation, required by 2010’s Health Care Reform Act, will likely be put into effect early in 2012. Restaurants would have to comply within six months.

In short, the FDA’s rules would affect restaurants with 20 or more locations doing business under the same name and offering substantially the same menu. It defines “restaurant or similar retail food establishment” as one that presents itself as a restaurant or uses 50% of its floor area to sell food.

Calories must be posted “clearly and prominently” on menus and menu boards, including at the drive-thru. Ranges are allowed for combination meals or those in which different options are available, and exceptions are made for limited-time offers and market tests of new items. Each menu will have to include a statement about suggested calorie intake, similar to the statement on packaged goods. The restaurants also have to make available written information on other nutritional content such as calories from fat, sodium, protein and carbohydrates.

The goal of the legislation is noble enough: to help people make better choices to eat healthfully and reduce obesity. However, it is not clear whether menu labeling has a significant impact. Research done in 2009 by Health Affairs, which studied consumer behavior after New York City implemented its regulations in 2008, found no change in calorie consumption. But a New York City Department of Health study found that those who paid attention to calorie information bought items with 106 fewer calories than those who didn’t.

Technomic research shows that more than six out of 10 consumers are in favor of menu-labeling legislation, though fewer of them expect to change their dining out habits because of it. We surveyed 500 consumers in early May 2011, a month after the FDA presented its proposed legislation but a year after the Health Care Reform Act, which required some sort of menu-labeling mandate, was passed. The research was undertaken to determine consumers’ attitudes about the upcoming legislation and whether they would eat out less often, purchase different items or ignore the information completely.

Many Consumers Are Concerned

To get an idea of how consumers currently use nutrition information, the survey asked when deciding which restaurant to go to, how important is it that a restaurant offers food low in fat or calories, serves organic items, posts nutritional information and other health-driven factors.

Almost six out of 10 consumers said that a restaurant offering healthy portion sizes is a deciding factor. Despite the context clues, it is possible that some respondents defined “healthy portion sizes” as large and substantial rather than appropriately sized for a person’s recommended daily caloric intake.

Nevertheless, about half of the respondents say they determine which restaurant to go to based on whether the restaurant serves food low in fat, sodium or calories. A slightly smaller percentage (44%) says whether a restaurant offers food low in sugar is a very or somewhat important factor in their decision.

Forty-three percent of consumers want a restaurant to post nutritional information on the menu, saying it’s important to their decision on whether to visit.

But Awareness Is Low

Although 43% of consumers say posted nutritional information is an important factor on where they decide to eat, half of consumers are not aware that federal laws will soon require chain restaurants to display calorie counts on menus.

Whether they knew it was in the works or not, 64% of consumers agree or strongly agree with the legislation. Following are some of the open-ended responses from consumers who agree with the legislation:

• “A lot of people don’t understand how much they are eating when they are out, and this info should be disclosed.”
• “It would help people to make better and healthier choices for their families.”
• “Because some chain restaurant foods are insanely high in calories and people don’t realize.”
• “Decisions I make quite often take into account the number of calories and amount of fat. I would very much like to have the information readily available.”
• “I agree because so many people nowadays are eating more healthy and they would like to know the calorie intake on the food they consume.”

And here are some comments from those who disagree:

• “If you are at a drive-thru, people are going to get upset that it takes too long.”
• “If you are eating out, why worry about the fat and calories?”
• “Because it’s up to the consumer to make intelligent choices. Why is the government making decisions for us?”
• “You can’t legislate good eating habits.”
• “I don’t think it needs to be on the actual food display or menu. I think a simple paper flyer located near the counter would suffice.”

Agreement Skews Younger and Female

More women than men agree with menu-labeling legislation: 70% of women agree or strongly agree vs. 57% of men. There are some big differences in responses from different age groups as well. Fully three-quarters of those aged 18 to 34 agree with the legislation. Older consumers are least likely to agree with the mandate, though almost half of them do.

Likewise, younger consumers are more likely to say that the posted calorie information will affect their dining habits. Fully 48% of consumers 18-34 predict they will pay greater attention to calorie content, and 46% expect to pay more attention to the nutritional value of the food. Meanwhile, 32% of those 65 and older would pay more attention to calories, and the same percentage would pay attention to the nutritional content.

While a quarter of respondents 35 years old and older expect to change how often they make food at home based on menu-labeling legislation, 44% of consumers 18-34 say it will likely affect how often they make food at home.

Women are also more likely to say their eating-out behaviors will change as a result of calorie information being posted prominently on menus: 50% say they will pay more attention to calorie content (vs. 34% of men), and 47% will pay more attention to nutritional content (vs. 33% of men).

Likewise, more female consumers than male predict menu labeling will change what they order in restaurants, which restaurants they visit and how often they visit restaurants.

Technomic’s survey asked respondents to comment on why seeing calorie counts would not change their behavior. Their responses tended toward being unconcerned with buying healthful items when they eat out (or not at all), feeling that they already know which foods are better for them, and putting taste before calories. Those who do expect to change their behavior commented on the ability to be more health-conscious and compare choices.

Conclusions and Opportunity

What consumers say they expect to do and what they actually do are often very different. However, a large number of them say knowledge of calorie counts will impact where and what they eat. If their expectations become reality, operators that do not offer healthful options and/or those that are low in calories stand to lose business to those that do.

Technomic research has shown that consumers tend to be more willing to indulge on special occasions and on the weekend, so menu developers may have more leeway at these times. However, they should consider lower-calorie items targeted toward weekday breakfast and lunch customers, because these are the dayparts during which consumers are most likely to seek healthful items.

Do Customers Care About Calories

This article came from a print version of M&C Report


UK Fast-Growing Fast-Casual: M&C Report

January 24, 2012

M&C-Dec

UK Fast-Growing Fast-Casual

The segment may be small, but it will continue to outpace the industry, attracting new competitors and spurring evolutionary changes from quick service and full service brands.

The fast-casual category in the United Kingdom is small but shows incredible potential, especially if it mirrors the segment in the United States. Segment sales were more than $20 billion in 2010, up 6% from $18.4 billion the prior year and a whopping 67% since 2005, when segment sales were about $12 billion. Technomic forecasts a 2.5% nominal increase in restaurant industry sales in 2011 over the prior year, but expects fast-casual segment sales to rise by about 10%.

The segment has shown remarkable growth in the U.K. as well, particularly in the London area. Our Leading 100 U.K. Chains Restaurant Report notes that the fast-casual chains within the top 100 totaled £537 million in 2007 and £795 in 2010. That 2010 figure represents a 4.4% increase over 2009, while the top 100 combined grew by 2.6%. We anticipate that 2011 will return growth figures of closer to 6%.

The State of the Segment

Fast casual is generally defined as establishments with a limited-service or self-service format; check averages generally above £8, food prepared to order, fresh (or perceived as fresh) ingredients, innovative food suited to sophisticated tastes, and upscale or highly developed interior design. Alcohol may be served.

The segment has much going for it in today’s economic and social climate. These restaurants give casual-dining consumers an opportunity to trade down to lower-priced yet high-quality fresh food. At the same time, they allow quick-service customers to trade up to a “third place” environment that offers affordable food quickly at a cost that is usually only a few pounds more than typical quick-service venues.

A look at the growing fast-casual chains reveals some menu-segment potential. On one hand, niches like bakery cafés and patisseries—which share the appeal and aroma of just-baked goods, fresh made-just-for-me food and comfortable atmospheres—and burgers—which customers come to for their high-quality proteins and ability to customize with a range of toppings—are already well-represented by leading brands such as Paul, Le Pain Quotidien, Patisserie Valerie Cafes and Gourmet Burger Kitchen. However, the ongoing success of these brands, as well as the reasons that consumers like them, indicate that there may be opportunity in those menu segments.

We also are watching menu segments that have potential and don’t currently have a leader with national coverage, particularly ethnic cuisines. Itsu is the top chain among Asian/noodle brands, but emerging chains worth watching include Miso Noodle Bar and Tampopo. Among Mexican cuisine concepts, Chilango, Barburrito and Benito’s Hat are on our radar screen. Middle Eastern/Indian food is also underrepresented in fast-casual, considering its overall appeal in the U.K. We’re watching Tiffinbites, Mooli’s and Hummus Bros., but expect to see new competitors join the fray.

Beyond ethnic players, we are noticing more “healthy” and “green” fast-casual concepts, such as POD, Tossed and Leon. This niche allows them to take the “fresh” aspect of fast-casual and extend it not only to “better for you,” but to “better for the environment.”

Facing Growing Competition

As has happened in the United States, the success of the fast-casual segment has attracted the attention of both full-service restaurants and quick-service chains. Full-service restaurants, particularly pubs, are looking at ways to enhance value and be more convenient, such as offering takeout and customer-paced ordering. Meanwhile, quick-service chains are trying to lure customers back by revamping their offerings and décor to compete with fast-casual concepts.

The fast-casual segment in the U.K. also is being observed by American chains, who hope to duplicate their success in the States. Chipotle Mexican Grill has entered the market and Five Guys Burgers and Fries and Pollo Tropical have announced plans to.

But as the fast-casual market in the United States is still emerging, there is opportunity for U.K. companies to export their concepts—or fast-casual versions of their concepts. Nando’s, Pret A Manger, Vapiano and Le Pain Quotidien are among the concepts that are growing in both countries. And Yo Sushi has plans to open fast-casual outlets throughout the States beginning early in 2012.

Heading Across the Pond

Fast-casual concepts that are considering entering the United States need to research the market and its consumers before leaping across the pond.

Menu segments with ongoing fast-casual potential in the United States are similar to those in the U.K.: the bakery-café, hamburger, Mexican, Asian and sandwich segments all have room for new concepts. It’s worth noting that U.S. customers’ tastes are often different from U.K. customers’; for instance, while U.S. consumers are crazy about Mexican food, so much so that Mexican concepts need to offer a specific point of differentiation, they have not taken to Indian and Middle Eastern cuisines, and overall require “safe” introductions to those flavors and dishes.

American consumers are currently attracted to fresh, custom-made and craveable items. Of growing interest is “healthy,” which includes not only nutritional composition but also related descriptors such as “organic,” “natural” and “sustainable.”

Speed, convenience and flexibility are of the utmost importance. Unfortunately, these are defined differently by different consumers, depending on regional and demographic factors as well as by occasion. In fact, the same person may define “convenient” one way for lunch during the week and a completely different way for a quick dinner on the weekend.

Companies with overseas expansion goals can study consumer demographics, follow U.S. food and menu trends, and analyze market and competitive factors on their own or with the help of research and consulting firms or by hiring local development or franchising experts.

Key Takeaway

The U.K. fast-casual market may be small, but it shows opportunities in many ways, including new concepts and niches, evolutions in the way full-service and quick-service concepts appeal to consumers, and international expansion. Smart operators and suppliers throughout the industry will pay close attention to this growing segment to target opportunities for their own companies.

Darren Tristano is Executive Vice President of Technomic Inc., a Chicago-based foodservice consultancy and research firm. Since 1993, he has led the development of Technomic’s Information Services division and directed multiple aspects of the firm’s operations. For more information, visit http://www.technomic.com.

Sidebar:
Defining Fast Casual

The elements of fast casual, the small but influential segment whose growth continues to outpace that of the rest of the industry, can be broken down into these “10 F’s”:

Fresh—Ingredients perceived as higher in quality than traditional limited-service offerings and generally of a casual-dining caliber; the food is often referred to as quick-service food geared to adults.

Pay First—Counter service; some chains have waitstaff bring orders to diners’ tables after guests place orders with a cashier.

Full-Grown Appeal—Customers are generally adults with middle to upper income.

Fine Ingredients—Menu offerings are freshly prepared, often in front of the customers, using ingredients made in-house or a commissary (such as freshly baked breads, soups, sauces and dressings).

Fast Service—Food is typically prepared in front of the customer within minutes of placing the order; waitstaff brings order to the diner’s table at some chains.

First-Rate Décor—Reflects upscale décor typically found at casual-dining restaurants; common furnishings may be fireplaces, soft seating, artwork and high-end lighting fixtures. It’s not uncommon for chains to offer complimentary Wi-Fi service at locations as well. The higher-end design element helps position fast-casual restaurants as a “third place” destination in addition to the work place and home environment.

Friendly Employees—Increased interaction between customers and those taking orders and preparing food. Employees may also bus tables at the end of the meal, which is also reminiscent of casual-dining establishments.

Flexible Offerings—Menu items are made to order and can be customized on an individual basis; typically offers self-service beverages, such as soft drinks (bottled or fountain) and bottled water and juices. The presence of some alcoholic beverages is not unusual.

Full-View Preparation—Ingredients and preparation typically in full view of customer; exhibition-style kitchens are common to the restaurant design.

Fair Price—Check averages are generally above £8; this is slightly higher than checks at quick-service restaurants, yet lower than full-service prices.

This article came from a print version of M&C Report


Amici’s Pizzeria Adds Far East to its Chain

January 24, 2012

Amici's

Amici’s Pizzeria Adds Far East to its Chain

Sophie Lo is convinced the burgeoning middle class of China’s largest city has a craving for upscale Bay Area pizza and pasta.

The Menlo Park businesswoman and her brother, developer Jimmy Lo, are working with officials of Amici’s East Coast Pizzeria Inc. to open the first restaurant of the San Mateo-based chain in Shanghai on Jan. 5. The 7,500-square-foot restaurant in the city’s upscale Huaihai Road shopping district will be Amici’s first location outside the Bay Area, where it operates 12 restaurants, including in San Jose, Cupertino, Mountain View, Menlo Park and San Mateo.

Lo says Amici’s is typical of many businesses on this side of the Pacific looking to expand into China, where the culture has become increasingly affluent, savvy and American friendly. There is a strong appetite for American products.

The wealthy city of Shanghai, the world’s largest city, has 23 million residents, including four million expatriates from the U.S. and other nations.

“Chinese people enjoy good food,” said Lo, citing the Chinese proverb, “To the ruler, the people are heaven; to the people, food is heaven.”

But she added, the Chinese tend to eat smaller portions of food at meals than do Americans and believes that customers there will appreciate the small and thin-crust pizzas Amici’s offers.

Lo said it will cost $1.5 million to open the first Amici’s in Shanghai. Her brother is handling store development in Asia. They and Amici’s owner Peter Cooperstein hope to open at least 200 Amici’s locations around China over the next decade or so. Expansion into neighboring Asian countries is possible.

“Shanghai is very westernized and young people in particular really admire everything about U.S. culture, including the food,” she said.

Strong roots in Asia

A native of Hong Kong with deep family ties in Shanghai, Lo has spent much of her career helping North American and European businesses tap into Chinese markets. The world’s largest nation has 1.3 billion people and an economy growing at 9.5 percent annually.

Most of her clients have been bigger than Amici’s, which projects 2011 sales of $32 million. Her resume compiled through her family’s company, Sun Lee Holdings, includes work with Exxon Mobil Corp., Royal Dutch Shell plc and Bayer AG, along with Nova Chemicals Corp. and Mitsui Chemicals Inc.

Lo moved to the Bay Area initially in 1986, earning a bachelor’s degree in international marketing from San Francisco State University. She returned to Asia to work with Sun Lee Holdings, but came back to the Bay Area in 1994 to found Sound Perfection. The company designs and installs audio, video and home theater systems.

She continued to keep an eye out for potential Chinese success stories among companies from the United States and other western countries. A loyal Amici’s customer, she met Cooperstein when she became the landlord of his Menlo Park location in 2009.

The pair realized the Chinese are no strangers to pizza. Its availability ranges from versions served in fine-dining establishments to the country’s 560 Pizza Hut locations.

She also convinced Cooperstein that the cost of doing business in China isn’t prohibitive, and the profits could be healthy, too.

“Rents in Shanghai can be three or four times more expensive than in the Bay Area, but labor costs are 25 percent of what they are here,” Cooperstein said. “Our target audience will be the locals in Shanghai who have a taste for upscale products and American food.”

Cooperstein said he estimates his company’s first Shanghai eatery could generate about $5 million in annual sales.

Darren Tristano, executive vice president at Technomic Inc., a Chicago food industry research and consulting firm, gives Amici’s a reasonable shot at Asian success.

“This is the time to get into China,” he said. “The economy is growing and it has a huge population. As long as American companies adapt to Chinese culture and tastes, they can be successful. Not as much money is being invested in restaurants (in the U.S.) because the economy is still terrible. I expect to see a lot more interest in China.”

View the full article on Silicon Valley/San Jose Business Journal