I N D U S T RY C R E AT I O N R E P O RT : Fast Casual Food Industry By:Matthew Sonnenfeldt, Halsey Merrit, Sarah Cummings, John Duke, Pamela Myers.

I N D U S T RY C R E AT I O N R E P O RT :

Fast Casual Food Industry

By:Matthew Sonnenfeldt, Halsey Merrit, Sarah Cummings, John

Duke, Pamela Myers

TA B L E O F C O N T E N T S

Definition 3

History 5

Rules of the game 6

Structure 8

Competition 9

Attractiveness 10

Appendices 12

DEFINITION

In this new era of technological advancement, everything seems to be instantaneous. You can send an email from one end of the world to the other and it will be received in a matter of seconds. People love fast and it’s no different in the food industry. In this fast-paced economy, consumers have less and less time to enjoy the, “sit down,” dining experience, but still want the quality. Fast casual dining allows you to have your cake, and eat it too.

  Fast casual is a mix between fast food and a sit-down casual restaurant with a refined dining environment and modern, elegant decor; Offering better quality food than a fast food chain, and faster service than a sit-down casual restaurant. Along with better food quality than fast food, fast casual restaurants often have healthier menu options than fast food, combined with prices ranging from $8-$15 ( Sena, 2012, para. 5) ; making it more economically friendly than fine dining

Matt Sena: Co-founder FieldLens

The Facts

• Sales reached 30 billion in 2010. A 30% increase from 2006 (Sena, 2012, para. 6)

• In 2008-during a time of economic downfall- Chipotle and Wingstop 20.7% and 17.8% respectively. McDonalds only grew 4.4%. Burger King on grew 6.6% (Sena, 2012. para. 6)

• There were 600 fast casual concept in 2009-leading the restaurant industry (Sean, 2012, para. 6)

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TRENDS

• “There were 4,442 more restaurants in the U.S. in fall 2012 than there were in fall 2011, according to a recent U.S. restaurant census conducted by The NPD Group. The total number of U.S. restaurants is now 616,008, a 0.7 percent increase over last year (pizzamarketplace, 2013, para. 1)

• Average lunch prices dropped from $9,06 in 2010 to $8.12 (Maze, 2012).

• Ever since the Economy collapsed in 2008, trends show that people are more concerned with their money and are flocking to healthier, more inexpensive restaurant options. This is shown in the 4.5% increase in sales during the economic crisis (Technomic). Sales are strongest during lunchtime according to Matt Sena of FieldLens.

• Although, on paper the fast food is controls the majority of the markets share, 30% of people said that they did not eat at fast casual restaurants solely from lack of availability. "Growth within the fast-casual segment reveals positive consumer preferences for the service format, concept and menu positioning, and price points." says Darren Tristano, EVP at Technomic. "But competition is still fierce and dining-out dollars are still minimal. Fast-casual operators will have to continue being creative with value-oriented menu offerings, uniqueness in terms of flavor, preparation and quality, and new ways to bolster the bottom line. (BBM, Tristano, 2010),.”

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HISTORY• Shifts in consumer demand for more having good food quickly

and “on the go” have made “fast casual” style restaurants grow faster and faster from the 1990’s to their all time high today. With more and more people buying pre-cooked meals and using drive-thru, there has been a large shift in what consumers want from a restaurant.

• The first pioneers of this type of industry were restaurants such as Fudruckers, Taco Cabana, and Au Bon Pain. From there, companies such as Boston Market grew up until today, the leaders of this type of industry are Panera Bread, Five Guys, and Chipotle.

• This is still a very very new type of industry as it has only been around for roughly 20 years.

• recent poll from Consumer Edge Insight found that of 3,100 U.S. consumers visiting restaurants at least once per month, those choosing fast casual restaurants more often, did so because they were less expensive (37 percent) and offer better value (31 percent), but also because they are seen as "more convenient" than other restaurants (33 percent). Many people visiting fast casual restaurants cited their better-tasting food (30 percent), greater variety of menu options (27 percent), healthier food (26 percent) and better atmosphere (24 percent).

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RULES OF THE GAME

The fast food industry has long been a convenient, easy, and fast way for people to grab food on the go or sit down and eat it. However, fast casual food redefines the lines and standards expected of these restaurants. This evolution of fast food started with the growing popularity of sophisticated food culture, coming from exposure to things like the Food Channel and food blogs (Jargon).

Fast food restaurants have been criticized for years for using pre-packaged, frozen, or other products made in advance (Jargon). The attempt to advance the freshness and perception of their food has made way to the fast casual industry, which demands freshness and high quality ingredients (Jargon).

Leaders in the industry, like Panera Bread and Chipotle, have adopted a simple logo, a niche menu, and fresh options for every diet. Such standards are expected in the industry in order for the restaurant to survive. Panera has opened close to 500 outlets since 1997, serving freshly baked goods as well as sandwiches, soups, and salads (Fast Casuals Come of Age). While restaurants have set a bar for fast casual, the real standards come from the customers. Customers demand fresh food, contemporary flavor profiles, healthful options, and the ability to customize orders (Dailey).

The National Restaurant Association (NRA) has a networking group called the Fast Casual Industry Council (FCIC), which is the primary advocate for the fast casual segment. The group consists of top executives from fast casual restaurants who discuss common concerns and advise the National Restaurant Association (NRA website). The FCIC offers an online program for the industry called Fast Casual TV, which helps others learn from key players in this particular industry segment (NRA website). The FCIC also hold conferences to give a comprehensive look at where the industry is now and where it will be in the future. These meetings provide insight for executives in the industry and allow them to learn from the success of other related industries (NRA website).

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STRUCTURE7About the Industry

A fast casual restaurant offers a dining option in between fast food joints and full service sit-down restaurants. Orders are usually taken at the counter but table side food delivery is provided. Prices are more affordable than sit-down restaurants but more expensive than fast food. Food is not pre-assembled; it is made to order. Improved food quality is present in the fast casual restaurants commitment to fresh ingredients, professional preparation and a visually appealing presentation. The atmosphere and décor is very comfortable with comfy chairs and wall art in comparison to the plastic look of fast food joints and the upscale atmosphere of sit-down restaurants. While fast casual restaurants retain the concept of fast food, they promote food quality and the comfort of casual dining. (Parpal)

Relationships between Producers and Consumers

While fast casual restaurants are a growing trend in the market, restaurant owners must keep up with the trends in the surrounding community. Such trends may be in design or in the food offered. The design of the restaurant must be attractive to consumers. Whether it is contemporary furnishings at Chipotle or comfy sofas and chairs near a fireplace at Panera, it must appeal to the target market. Another trending matter is healthier options at restaurants. Many consumers are trying to be healthy so producers must take this into consideration when creating the menu. Fresh ingredients and an open kitchen assembly line should be incorporated so consumers know exactly what is going into their food. Trends are a constant factor that producers must adapt to in the industry.

STRUCTURE8Five Forces Analysis

Rivalry among existing competitors - Rivalry is not great between fast casual restaurants just yet as the market is growing and menus differ amongst existing competitors.

Threat of New Entrants - The entrance of new fast casual restaurants is very likely as the trend is growing in the market. Some new entrants in the industry are Chipotle and Noodles & Company.

Bargaining Power of Buyers - With few competitors in the industry, buyers have much bargaining power. Fewer choices cause buyers to be more conscious of prices. Consumers must be priced competitively to get business in the industry.

Threat of Substitute products or services - Fast food and casual dining establishments are both possible substitutes. A fast food and casual dining restaurant exists for every type of food offered at a fast casual restaurant.

Bargaining power of suppliers - With a growing demand for supplies due to new entrants, suppliers have bargaining power. Supplies such as fresh ingredients, paper/plastic tableware and kitchen equipment and supplies are all in high demand in the fast casual industry.

COMPETITION

Restaurants of this fast casual concept are a growing trend in the food service sector. Fast casual restaurants currently only make up 6% of the market but there are many coming about in chain franchises or by independent entrepreneurs. Some well-known competitors of the fast casual industry are Panera Bread, Chipotle, Five Guys and Noodles & Company. These along with other chain franchises and independent restaurant owners have made the concept of fast casual the fastest growing restaurant sector since 2006. The sector will continue to grow with the emergence of new fast casual restaurants in the market.

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WHY FAST CASUAL IS ATTRACTIVE10

As the restaurant industry has evolved, three types of Chinese restaurant developed: authentic family-operated Chinatown restaurants exclusive to mainly Chinese people, single-unit independent Chinese restaurants outside Chinatown catering to American customers, and multi-unit operations, which started around 1970s with noticeable establishments such as Panda Express and Leeann Chin. Even until 1980s, the Chinese restaurant sector was dominated by the second type of independent family restaurants, leaving a visible market gap for national Chinese restaurant chain business (Parsa & Kwansa, 2002).

Chinese restaurant chains are affected by the changing demographic makeup of customer population as more Asian immigrants arrive at this country. These customers are accustomed to the Chinese food in China and require more than just convenience and affordability but authenticity. Meanwhile, the domestic American customer profile has shifted as people nowadays become more conscious and aware of their eating habits. A variety of low-fat diets have become socially trendy hype. As more advanced communication technology and transportation channels become accessible, the obtaining of fresher and better ingredients provides bigger opportunities for Chinese restaurant chains to cut cost and achieve greater authenticity. Chinese restaurant market is a great appeal to the fast-casual segment of the restaurant industry also because the intense competition in general in this segment, yet there seems to lack an authentic national Chinese chain superbrand (Parsa & Kwansa, 2002).

“Lack of differentiation and shifts in consumer behavior and lifestyle have since led many consumers to largely abandon or dramatically cut back on their traditional casual-dining visit.” Technomic VP Pawlak continued to point out that modern people “don’t take time to sit down for meals very often anymore, and when they do go out they find they can get equal if not even better-quality food for considerably less time and money at fast-causal alternatives where, by the way, they also don’t have to add on a 15 to 20 percent tip” (Tanyeri, 2012).As large restaurant chains expanded, many restaurant segments entered the mature stage of the industry life cycle. The fast-casual segment has been highly competitive and difficult to create advantageous locations for new chain units. The large chains that enjoy the high brand-awareness have also diffused into more diversified market sectors such as contract feeding and institutional foodservice (Parsa & Kwansa, 2002).

The country’s largest fast-causal chains continue to outpace other segments in the restaurant industry with their sales and unit growth performance ("Top 150 fast-casual," 2011). The top 150 largest fast-causal brands had sales revenue of $21.5 billion with 8.4% growth in 2011, comparing to 6.6% in 2010. The restaurant industry as a whole had an aggregate 3.5% in 2011, outshone by the fast-casual segment. “Panera had the most sales in the bakery-café segment with $3.3 billion in 2011, while Five Guys led the “better burger” sector with $950 million in annual sales. Chipotle Mexican Grill’s $2.3 billion in sales in 2011 paced the Mexican category, while Panda Express led the Asian segment with $1.5 billion” (Brandau, 2012).

WHY FAST CASUAL IS ATTRACTIVE CONT..

11There are many difficulties in creating an authentic

nationally-recognized Chinese chain brand. One big challenge is culinary authenticity and consistency of food quality. Often categorized as “cheap, generic, and Americanized”, the second type of Chinese restaurants tends to offer a similar menu across the country, inventing dishes often unheard of in China. The cooking process differ that of any other type of cuisine: majority time and effort go into the preparation. This creates a mental challenge for the local kitchen staffs who are unfamiliar with the system. Employee management becomes a greater challenge when there is a cultural gap to surmount. Last but not least, the competition from independent “type II” Chinese restaurants remain strong, because American appetite still craves the sweet and sour version covered in greasy sauce (Parsa & Kwansa, 2002).

“That's how much the Panda Express restaurant chain plans to grow in the next five years, at least in terms of locations. The company now operates 1,350 "fast casual" Asian restaurants and wants to raise that to 2,300. "Asian is the new Mexican," says Glenn Lunde, senior vice president of marketing at the closely held firm, which was founded in 1973 by Chinese immigrants Andrew Cherng and his father with one restaurant in Pasadena” ("Panda express plans," 2010).“Asian Segment Provides Untapped QSR Niche” Christa Hoyland June 2, 2009

Authentic Asian foods will be difficult to succeed in US fast-casual segment, in spite of Americans’ increasingly adventurous spirit. East West Hospitality Group President Joel Silverstein claimed that the closer to authenticity, the more limited the US market. Like most Western brands entering Asian market and adapting to Asian tastes, Asian brands need to adapt to succeed” (Hoyland, 2009

APPENDIX12

 Source: Prepared from Technomic's 2010 Top 100 Fast-Casual Chain Restaurant Report

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