Commentary

Why the fast casual bubble isn't really bursting

Without a doubt, there are way too many fast casual concepts, but those that make the right changes in order to drive unit economics will continue to thrive.

October 9, 2017 by Juan Martinez — Principal, PLG

Lately, I've seen many articles suggesting that the fast casual bubble has popped, and growth in this category is over.

I strongly disagree.

Without a doubt, there are way too many fast casual concepts. I think we can compare it to the gold rush of the mid1800s, where many headed West to make their fortunes. I also think about the day-trading craze that hit us a couple of decades ago, when many people became traders and actually thought they knew how to beat the market consistently.

Somewhere along the way, the increased competition in both gold mining and day trading led to many players backing out earlier than they had hoped. So, is it over for the fast casual category? I don't think so, but the segment has changed, which means you must as well.

Several years ago, fast casuals started filling the gap between QSRs and full-service restaurants. They offered higher-quality products in an up-scale environment but at an affordable price point. They touted their made-to-order and scratch production systems, comparing their food to what was served in casual dining outlets. By doing this, they were able to charge higher prices than QSRs but were cheaper and faster than casual brands.

As the executive teams of QSR concepts began to see who was taking their "share of stomach," they realized that they, too, could up the ante on quality, while maintaining faster service than fast casual. For this and other reasons, the gap between fast casual and QSR began to close.

Fast forward to today. How can fast casual survive?
Now is the time to retool, reenergize and reinvent. You must take efficiency to the next level in order to drive better "unit economics" while continuing to facilitate menu innovation.

As you do this, you should think about why you. What is your differentiating proposition in the marketplace? The answer will likely not be the same as it was when you first started since the competitive environment has shifted dramatically.

Some concepts will still die or shrink significantly since it is always true that the stronger will survive. This is just a natural phenomenon of a capitalist economy. To maximize the likelihood of succeeding, I would recommend that you figure out how to deliver your offering with lower capital cost of development, as well as lower operating costs during peak and non-peak periods(with minimum staffing — especially labor — a line item that continues to be challenging. In addition, you must ensure peak hourly sales meet the demands of the busy hours since this is where the bulk of the business will come from. Bottom-line is that you must lower the break-even sales levels by driving more sales and/or reducing costs.

So how do you take efficiency to the next level?
Start by looking at where your concept is in terms of capital and operating costs. It's important to look at operating parameters. In the area of processes and procedures, assembly
methods and food prep is a cost that is typically intense and expensive.

Consider that not all prep is created equally and ask yourself the following questions:

Why do you do prep of certain items?
Does it matter to your guest?
Do they give you credit, which drives a differentiating point?
Considering that consistency across the different locations is a huge aspect of quality, can you control consistency?
How do you do prep?
Are you efficient with operating parameters (Process, procedures, platforms, place)?
When do you do prep?
Do you use the shoulders of your guest service peaks, or do you end up adding another body through parts of the day increasing your peak deployment?
How do you manage labor, including prep?
Is the schedule driven by work content to get done what you need?
Does the scheduling system enable you to control the time to do the prep in order to avoid a “prep entitlement” that exists in some concepts?
In the area of platforms (equipment and technology), are you providing the right level of focus on the self-order demand that is happening in the market place? The guests want it, so give it to them. But don't forget to give it to them right, including not only the interface to order and the customer journey to pick up, but also the design of the production engine to ensure that you have the capacity to deliver service; for both online and eat-in guests. If you don't have the right production capacity, you could end up disappointing both.

So is the fast casual craze over? I say that it does not have to be for you. However, you need to step up the efficiency of service, throughput, labor, capital, design and menu to facilitate the economics that will fuel growth.

Cover photo: iStock

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