Fast-casual players may have found success by offering a fresher, higher-quality alternative to fast food and a less-expensive option to casual dining, but that does not mean the segment is without challenges, according to The NPD Group.
Although the fast-casual segment has swelled to include 13,000 units and tripled its market share in the past 10 to 15 years — and was the only restaurant segment to grow in the past five — it still battles perceptions of being unaffordable and a shortage of brand-loyal fans.
“Everyone’s talking about their success, but they have challenges, too,” said Bonnie Riggs, an analyst with Port Washington, N.Y.-based NPD. “If they are going to continue to grow, they will have to meet those challenges.”
According to recent NPD research, fast-casual restaurant consumers skew younger and are largely educated and more affluent. Adults aged 18 to 34 are the biggest users, and women, in particular, find the segment extremely appealing. Further, most customers visit at lunchtime, typically stopping for a quick meal while running errands or shopping.
Fast-casual users fall into four groups, NPD found, including loyal customers, switchers, lapsed users and the price sensitive. Thirty-eight percent of fast-casual users are loyal, claiming they go to the same concepts regardless of special offers. Meanwhile, 40 percent are so-called switchers, who say they go to concepts based on new items or promotions. Fourteen percent of users are lapsed, admitting that they seldom visit or think about going to fast-casual outlets. And about 8 percent of users fall into the price-sensitive category and visit the segment only when presented with a deal.
Among consumers that have not yet visited fast-casual restaurants — a group that skews largely older and lower income — NPD found price was a significant barrier. While 43 percent of those surveyed said they didn’t frequent fast-casual players simply because they visited other types of restaurants, nearly one-third indicated price was a deterrent. Of that one-third, 18 percent said fast-casual concepts were too expensive, and 13 percent said it was not a good value for the money. The average check for lunch at a fast-casual restaurant is $7.17, compared to $5.45 at a fast-food restaurant, $8.71 in family dining and $11.26 at a casual-dining restaurant.
Location and brand awareness are also barriers for those who have not yet visited fast casual, NPD found. Thirty-three percent of nonusers said there were no fast-casual restaurants in their area, and 20 percent said they just don’t think of visiting the segment. Meanwhile, 29 percent said they are eating at home more often.
Fast-casual visitors surveyed rated the segment higher than its fast-food competitors in many attributes, including taste and flavor of food, quality of food, freshness, restaurant cleanliness and offering food prepared the way they like it. However, when it comes to being affordable, quick service beat out fast casual.
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Respondents also rated fast-casual concepts higher than midscale ones in providing healthful options, efficient service, restaurant cleanliness and flavorful food. But midscale bested fast casual when ranked on affordability, menu variety and value for the money. Similarly, consumers rated fast casual higher than casual dining on healthful options and efficient service, but casual dining won out when it came to beverage choices, variety of food, how appreciated customers felt, friendly service and atmosphere.
To remain successful, fast-casual operations will have to stay relevant, said Riggs, noting that 20 years ago the now-ailing midscale segment captured 30 percent of all restaurant visits.
“They didn’t stay new, fresh, clean,” she said. “Fast casual is going to have to keep reinventing itself.”
Industry experts agree that fast-casual players need to do more than ride the wave of success the segment is currently experiencing. They need to create more, perhaps even bigger waves to avoid a segment wipeout. How operators do that, however, is up for debate.
According to consultant Dennis Lombardi of WD Partners in Columbus, Ohio, even though the fast-casual segment grew on the merits of its fare, it will need more going forward.
“They cannot make food a perpetual, sustainable advantage,” said Lombardi.
With more competitors continuing to mimic fast-casual food offerings and increased competition within the fast-casual segment, Lombardi believes fast-casual operators need to focus more on the dining experience.
“They have to make connections [with consumers] inside the store. [They have] got to be able to maintain a good experience in the store,” he said.
In contrast, Dean Small of Synergy Restaurant Consultants in Laguna Niguel, Calif., said he believes it is in fact all about the food.
“It comes down to food quality … variety,” he said.
He added that he does not think fast-casual operators should sweat competition from fast feeders.
“It will be a challenge for fast-food players to keep up with fast casual … because of price point, cooking platforms,” he said.
But Small does agree about the importance of connecting with guests.
“The only way to get brand loyalty is making that emotional connection,” he said. “I think brand loyalty is very fragile today. The only way to get brand loyalty is … the food offering and how you communicate with them.”
To build customer loyalty, Lombardi thinks fast-casual operators need to both encourage use of the category and their own brands.
“Probably the best way is through social media and loyalty programs,” he said.
Nation’s Restaurant News has an exclusive agreement to obtain the NPD Group data and research findings that appear on the Consumer Trends page.