Fast-casual. This is the segment of the restaurant industry in the US that is enjoying a boom. The sales in 2014 increased over the previous year by 11%, greatly outpacing the 6% increase in the fast food segment. The hamburger chain Shake Shack, which recently announced listing on the stock exchange and entry into the Japanese market, is a fast-casual restaurant.
The fast-casual segment is positioned between fast food and casual dining, which includes the higher grade family restaurants, with typical meal costs in the USD 9 to 13 range. There are three reasons that fast-casual is doing so well. One is a commitment to better quality ingredients and preparation. The style is to obtain fresh ingredients locally and prepare the dishes at each location for local consumption, to avoid using frozen ingredients. Safe food products are used, including organic vegetables and meats that are produced without antibiotics. The taste of the dishes is important. It is the polar opposite of fast food, which is processed in factories from low-cost ingredients; and, it is being welcomed by consumers.
The high-profile company in this segment is Chipotle Mexican Grill (hereafter “Chipotle”). A pioneer in the fast-casual segment, Chipotle emphasizes their commitment to a rigorous food procurement policy with the motto “Food with Integrity” displayed over the counter, even before the menu. They use only top-quality vegetables and meats, produced naturally by directly-operated, exclusive local farms. In addition, Chipotle currently operates nearly 1,800 restaurants, and continues to open new locations at a pace of about 200 per year.
A second reason is a focus on service and concept, such as highly-customizable menus, and sophisticated restaurant interior décor to create a relaxing atmosphere. At Chipotle, the build-your-own burrito is popular, with customers able to choose from a selection of ingredients displayed at the counter. Panera Bread is probably the next most-recognized fast-casual restaurant after Chipotle. Their concept is to offer delicious sandwiches, soups and coffee in a clean, bright café atmosphere, which is especially popular among women.
The third reason is that the strong companies in the fast-casual segment are earning high levels of customer satisfaction by winning the non-price competition. For this reason, higher prices at the fast-casual restaurants are accepted by customers. This is unthinkable in the fast food segment, which has long pursued price competition strategies, and offers a clear advantage in ensuring some room for business development. In fact, the average per customer spending at Chipotle is double that at McDonald’s. Even with a large recent price increase at Chipotle, the existing-store base sales in 2014 were up by 17% at Chipotle, while decreasing by 2% at McDonald’s.