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.
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.
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.