Can fast-casual continue its rapid growth?

January 22, 2014

page067thave 100Fast-casual eateries are riding a boom of consumer demand for better food at cheaper prices. It’s a formula that now accounts for nearly 10 percent of sales across the restaurant industry.

But can the segment continue its industry-leading growth?

Analysts and those within the restaurant industry say yes.

The NPD Group projects fast-casual concepts will continue double-digit growth through the next decade.

“They’ll grow more than 1 percent a year over the next 10 years, when the industry is forecast to grow less than half a percent a year,” said Bonnie Riggs, a restaurant analyst with the Port Washington, N.Y.-based research firm. “It will be a battle for market share. This group of concepts will be a group that will be winning that battle.”

Small and rural markets will fuel the segment’s growth and dominance of the $420 billion national restaurant industry.

During the past six years, fast-casual’s growth has occurred in higher-density markets such as cities and suburbs, said Darren Tristano, executive vice president of Chicago-based food industry research firm Technomic Inc. He said many of these chains and concepts will start looking at smaller areas.

“Primarily, you don’t need a lot of sales to justify a restaurant (in these markets),” he said, citing Jimmy John’s Gourmet Sandwiches and Chipotle Mexican Grill among the brands eyeing those markets. “We’ve seen in the smaller markets the demand is there, and they’re generating sales because unit volumes are so high.”

The economics of fast-casual make it a perfect fit for smaller markets because of lower overhead costs.

“A small footprint and reduced cost on food and beverage still provides ample opportunities to be profitable,” Tristano said.

Even in sprawled-out markets such as Phoenix, fast-casual will continue to dominate, said Dan Beem, president of Scottsdale-based Cold Stone Creamery, a unit of Kahala Corp.

“There’s definitely room for growth in the Phoenix market,” he said. “The economy’s picking up, and our food scene has really evolved the past eight years.”

That being said, those with quality product will win out.

“The minute you start to diminish on food quality, you’re going to lose your consumers very, very, very quickly,” said Steve Chucri, president and CEO of the Arizona Restaurant Association.