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NPD: Fast casual poised for further growth

Leading chains outperformed the industry during downturn; report predicts continued expansion

While the deep recession and grindingly slow recovery have battered many in the restaurant industry, leading fast-casual chains like Chipotle, Five Guys and Panera thrived during that period, says new research from The NPD Group.

The Port Washington, N.Y.-based research firm found that customer counts at the nation’s largest fast-casual concepts rose 17 percent over the past three years, logging traffic gains of 7 percent in 2008, 4 percent in 2009 and 6 percent in 2010.

In comparison, guest counts for the entire industry and the quick-service segment declined or remained flat during the same time frame.

“Fast-casual restaurants have done an excellent job of satisfying their customers’ needs for quality and service and have built strong customer loyalty as a result,” said NPD’s restaurant industry analyst Bonnie Riggs. “The attributes that define the fast-casual concept — fresh, food quality and service — are the reasons why customers give them their highest satisfaction ratings.”

Several fast-casual chains have stood out in the past few years for outperforming the industry. In its recently released “Top 500 Report,” Chicago-based research firm Technomic identified Five Guys Burgers and Fries, Chipotle Mexican Grill, and Noodles & Co., as among the 10 fastest-growing restaurant chains with annual sales exceeding $200 million.

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Five Guys’ annual sales grew 38 percent last year to an estimated $625 million, benefiting from unit count growth of 35 percent. Segment heavyweight Chipotle increased sales 21 percent to $1.83 billion and its store count by 14 percent. Noodles & Co. expanded its sales 14 percent to $261 million and its system size by 11 percent.

Panera Bread Co., whose 2010 revenues rose 14 percent to $1.54 billion, recently told investors it plans to open between 95 and 105 new restaurants in 2011 and would seek to grow sales by expanding its catering business, leveraging data from its loyalty program and selectively building more drive-thrus.

“Fast-casual concepts are in an excellent position for growth,” Riggs said. “We’ve seen other fast-food customers trading up to fast casual and full-service customers trading down to fast casual. In addition, with imitation being the highest form of flattery, we’re now seeing other segments of the industry duplicate what has made fast-casual concepts so successful.”

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The spread between customers’ increased visits to fast-casual chains and those brands’ ability to expand rapidly enough to meet the demand demonstrates that high level of guest satisfaction, NPD said. While traffic at fast-casual operations has increased 17 percent between 2008 and 2010, the segment’s aggregate unit count expanded 12 percent during that period, NPD found, leaving room for more sales growth in the near term.

Demographics also will play to the fast-casual segment’s strengths in the coming years, NPD said, citing its report titled “A Look into the Future of Foodservice.” The report provides a 10-year forecast for restaurant industry trends based on aging, population growth and trend momentum.

Incremental traffic for fast casual will grow significantly over the next decade, NPD said, due to high rates of usage by young consumers in “Generation Z,” whose members are currently between 10 and 30 years of age. That cohort will be the largest demographic group in the United States, with 90 million people, by 2019.

Contact Mark Brandau at [email protected].

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