Ever since "fast casual" was coined in the late 1990s, contrasts have been drawn between the fledgling subsegment and its limited-service QSR counterpart. For example, fast casual has a different ordering setup and slower delivery time, more upscale décor and a slightly higher price point.
Fast casual also began taking away some market share within the past few years thanks to its positioning as having healthier, higher quality food.
By hitting consumer trends head on, fast casual brands now account for more than $23.5 billion of the $200 billion restaurant industry. According to market research firm Technomic, 10 years ago, limited-service establishments made up 47 percent of the total commercial foodservice industry while full-service restaurants (FSRs) made up 53 percent. Because of the staggering growth of fast casual restaurants, the landscape has since reversed; LSRs account for 53 percent and FSRs 47 percent.
And although that rapid growth is expected to continue, the differentiation between the two subsegments seems to be shrinking as QSRs abandon their 1980s exteriors, add Wi-Fi, flatscreens and fireplaces, and upgrade their burgers to keep pace.
"The key to LSR growth is differentiation," said Darren Tristano, executive vice president at Technomic. "Many LSRs that have demonstrated growth have a broad consumer appeal, yet each has a discerned approach. Consumers are looking for fresh, better quality ingredients, a contemporary decor and ambiance, and interactive service formats to offer something unique and enhance the customer experience."
Technomic's new consumer trend report "The Future of LSR" predicts a continued blurring of the lines between the two subsegments as consumer demands change and diners become more conscious about where they spend their food dollars.
The burger category is especially crowded, with new players such as Smashburger and Five Guys Burgers and Fries experiencing double-digit growth to boost the fast casual presence. Smashburger grew sales by more than 71 percent in 2011, and Five Guys Burgers and Fries increased sales by 24 percent.
In total, fast casual burger chains grew by 20.8 percent last year, according to Technomic, while all LSR burger chains grew 3.7 percent.
Still, McDonald's accounts for more than half of the burger business, and its biggest QSR competitors – Burger King and Wendy's – have been bold with menu innovations during the past year. Wendy's now lists six burgers on its premium menu, from Dave's Hot 'N Juicy ¾ pound triple to the new Baconator. Burger King added guacamole to its Whopper earlier this year for a limited time promotion, and now features a line of BBQ-inspired Whoppers.
"Better burger" doesn't automatically equate to fast casual anymore, said Mary Chapman, Technomic's director of product innovation.
The comparisons between QSR and fast casual has extended well beyond burgers within recent years. Starbucks, long considered a top fast casual player, is feeling more pressure from an aggressively expanding Dunkin' Donuts, particularly for K-Cup share, as well as a constantly updated McDonald's McCafe lineup.
Other QSR brands such as Krispy Kreme and Wendy's are beginning to dip their toes in the premium coffee space.
The growing specialty beverage landscape, once dominated by higher-price point brands such as Jamba Juice, now includes QSR as well. McDonald's, Burger King, Tim Hortons and Jack in the Box are gaining market share with their fruit smoothies, for example, and Dairy Queen will toss its hat into the ring in the fall with an Orange Julius-branded smoothie.
Taco Bell recently launched its Cantina Bell menu, with creations by Celebrity Chef Lorena Garcia, which has intensified its competition with fast casuals Chipotle and Qdoba. Some analysts have even blamed Chipotle's disappointing second quarter results on Taco Bell's latest innovations.
QSRs also are taking a page from fast casual's upscale décor and lounge-like ambiance. McDonald's is currently in the middle of a $1 billion-plus remodeling effort that should be completed at its 14,000 U.S. units in 2015. Wendy's and Burger King are reimaging their restaurants to include features such as flatscreen TVs, digital menu boards, Wi-Fi and fireplaces. Early returns on Wendy's prototypes show a 25 percent jump in sales with the biggest increase coming from dine-in checks.
In a May earnings call, Wendy's CEO Emil Brolick directly identified fast casual as a driver of these changes.
"We understand consumer reference points have changed. Today's consumers not only have traditional QSR options but they have quick casual options, the new QSRs, which are providing consumers that elevated food experience, a comfortable environment and heightened service standards. We get it. The competitive bar has been raised," he said.
These types of changes, especially higher quality food offerings, are what consumers want and need, according to Bonnie Riggs, restaurant industry analyst at NPD and author of the report "Fast Casual: A Growing Market," launched earlier this year.
"Fast casual concepts are in an excellent position for growth relative to the overall industry," she said. "However, the same growth opportunities are available to any restaurant operator able to innovate, provide value for money, and not just keep up but surpass competitors."
Fast casuals taking cues, too
QSRs haven't been alone in changing to better compete with the busier playing field; fast casuals have also adopted some typically fast-food characteristics. For example, 72 percent of consumers polled by Technomic said they visit a quick-service establishment once a week, while only 49 percent visit a fast casual, citing higher fast casual price points for the discrepancy.
Some fast casuals, such as Mimi's Café and UFood Grill, have launched value offers or menus in response.
Speediness also is a factor for patrons choosing QSRs. As such, more fast casuals are adding drive-thrus to their operations.
In a recent earnings call, Panera Bread co-CEO Bill Moreton said the company is on track to end the year with 200 units featuring a drive-thru. These, he added, will be a tool for the company to increase customer convenience.
Regardless of how this competition plays out between QSR and fast casual, or if the line continues to blur, leaders in both segments agree that simply focusing on their own game is the best strategy to take.
McDonald's CEO Don Thompson reiterated this in a July earnings call. "We're seeing a hike in competitive activity across the marketplace ... from fast casual to convenience and grocery stores. For us as McDonald's, what matters most is to remain focused on what's within our realm of control."
Panera's chairman and co-CEO Ron Shaich echoed something similar in his brand's most recent earnings call.
"We don't think there is such a thing as a fast casual category. We don't compete in that versus the QSR. We think there is a continued battle for a share of stomach ... It occurs at the level of individual consumer solutions. QSR is increasingly redeveloping and understands that environments matter in a profound way and the totality of the experience matters," he said. "The action is continuing to own our space and continuing to do a better job than others do at what we have to do."
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