News

COVER: The Asian influence

Asian fast casuals dump the lo mein stereotype.

April 16, 2008

These days, if you're looking for a quick bite to eat, it seems you can't turn a corner without noticing a restaurant serving Asian cuisine. In our timestarved, health-conscious culture, Asian fast-casual restaurants are popping up everywhere, thanks in part to consumers' demand for alternatives to traditional fast casual offerings. The United States clearly is experiencing an Asian food invasion, and it shows no signs of slowing down.

According to Technomic Information Services, the fast-casual market is valued at between $16 billion and $17 billion, and Asian (including noodle) chains account for $1.7 billion, or about 10 percent, of this number, with growth rates continuing to outperform fast casual as a whole. Panda Express, Pei Wei Asian Diner, Noodles & Company and Pick Up Stix currently lead the segment.

"Forty-five percent of quick-service operators say Asian items are increasing in popularity on their menus," said Annika Stensson, spokeswoman for the NationalRestaurant Association. "So there is definitely consumer interest in ethnic foods in general and Asian cuisines in particular, especially among younger consumers who are seeking more adventurous dining experiences."

Additionally, 76 percent of consumers say they are trying to eat more healthily in restaurants now than they did two years ago. That could be another factor driving this trend, Stensson said.

Suzy Badaracco, owner of trend-forecasting firm Culinary Tides, agrees that health is a major driver of the segment, but says travel also plays an important role.

"I think there are two main things behind the segment — health and travel," said Badaracco. "The health trend has been in Japan so long now, whereas here, in the U.S., it is in its infancy. Increased travel to Southeast Asia, China, Japan, (and other regions) has brought the flavors here as travelers come back and look to duplicate their experience abroad.

"There is a travel trend known as â€˜postwar travel,' which is travel to post-war countries now reinvigorated. Vietnam, for instance, has now recovered enough to have a healthy travel economy. Boomers are a big push behind health and are also the segment that is traveling, so the group marries well with health and travel."

Chains across the segment are stepping up to fill the need for healthy foods, including category leader Panda Express, which has more than 1,000 locations in 36 states and made $1 billion in sales in 2007.

"Items such as chicken breast, sugar peas and water chestnut — which are featured in Panda Express entrees — cater to the consumer's demand for a healthy alternative that is still rich in variety and flavor," said Kim Ellis, executive vice president of restaurant development for Panda Express.

Pho Hoa, which operates 80 locations in 10 states along with Canada and Asia, has made its name by focusing on Vietnamese pho, or rice noodles, which the company calls a healthy alternative in Asian cuisine.

"Vietnamese pho is a refreshing change from traditional Asian cuisine in terms of utilizing more healthy ingredients during preparation," said Eddy Thio, director of operations for Pho Hoa. "As consumers become more health conscious when eating out, we believe pho will be among â€˜top of mind' choices. Prepared correctly, pho is a wholesome product containing high levels of protein."

Category crossover

Health is not the only factor contributing to the success of the Asian fast-casual segment. Category crossover is another important trend.

"Fusion cuisines are a trend, as well," said Stensson. "Whether mixing Asian flavors and ingredients with those of other ethnic cuisines or putting an Asian twist on traditionally American dishes, chefs and other recipe developers have a wide variety of options when it comes to pleasing consumer palates."

Badaracco agrees with Stensson on the importance of crossover and cites a specific example.

"One thing that could cross into fast casual is Izakaya. Like tapas, it is Japanese small plates," she said. "Normally you would have to go to an Izakaya bar to get this, but it could easily cross out of that environment to fast casual. It fits with the smaller portions seen in 100-calorie packs in retail, mini desserts and the obesity crisis in general."

Other factors driving the segment include good locations and value, but as with the entire fast-casual industry, finding good locations is a growth challenge faced by the Asian segment.

Genghis Grill, which has 20 locations in eight states, has encountered this problem. The company's CEO Al Bhakta said finding the right real estate in new markets has been one of its main challenges.

"As we are growing, this challenge is becoming a bit easier, but without a good location, it's hard to survive in this business," Bhakta said. "Also, it's hard to overcome the mom-and-pop-style Asian restaurant stigma as many real-estate developers don't realize that we are an emerging chain."

Panda Express, which is adding about 160 new locations each year, also is struggling to meet demand.

"We are focused on saving time in the pipeline in order to build and open our restaurants in a timely fashion," Ellis said. "Additionally, we are mindful of keeping construction costs down without compromising the integrity of our design and interior features."

As part of the location issue, Ellis said the segment has a greater need for convenience.

"The majority of Chinese food is still eaten in the restaurant or as take-home meals— with little option for convenience," she said. "The (overall) Asian segment needs to address the convenience factor that consumers seek in QSR, such as drive-thru and free-standing street locations. Additionally, providing a portable option is important for this segment. While Panda Express already has free-standing and drive-thru locations, we are looking into how we can better serve our guests by offering an on-the-go option."

The Asian segment faces other challenges.

"The segment faces the same challenges that the industry faces," said Darren Tristano, executive vice president at Technomic. "Higher fuel costs, decreasing DPI (disposable personal income) and recession, but more importantly, the higher cost of maintaining a fast-casual platform requires higher sales volume. So where QSR can get by with lower AUV (average unit volume), fast casual needs higher volumes to pay the higher rent, food cost, labor and so forth."

Despite the challenges, segment growth will continue for the foreseeable future as customers will become more demanding.

"In the next few years, I would expect the segment to be thinned to those companies that translate the concepts well. I also expect that the segment will move from Asian-American to authentic Asian with better supply chains and understanding of regional flavors," Badaracco said. "As Americans mature in their Asian-flavor education, they will move the industry to region-specific and country-specific flavors and dishes.

Americans can tolerate a generic version of a country's cuisine for only so long, and with increased travel to Asian countries and regions, their knowledge and desire for authenticity will only grow."

Perhaps most promising for the Asian segment is that there is plenty of room for new entrants.

"In the next two to three years, consumers will see new players entering the Asian segment," Ellis said. "This will raise the bar for everyone — ensuring that those in the segment will continue to stay ahead of consumer demand for quality and exceptional dining experiences."

As Bhakta put it, "There will be more concepts, more ideas and more offerings, which will all lead to more awareness of the (segment). Ultimately, it is great for consumers as they will have more choices in the marketplace."