The Rapid Rise of Fast Casual
Fast-casual restaurants have become the rock star growth vehicles in foodservice, so it’s no surprise that full-service restaurant operators keep looking to enter that part of the industry.
A number of full-serve dining companies, from P.F. Chang’s to Shula’s Steak Houses, started fast-casual chains. Others acquired them—like Ruby Tuesday’s purchase of Lime Fresh Mexican Grill—or invested in them—as Buffalo Wild Wings did with PizzaRev.
In addition, various celebrity chef/restaurateurs, including Wolfgang Puck, Rick Bayless, and Bobby Flay, launched fast-casual places, and so have former full-service chain owners like Bravo Brio Restaurant Group co-founder Chris Doody, who began Piada Italian Street Food.
“If you look at the quality of the food coming out of fast-casual operations, it’s often quite high, with some unique menu items,” says Dennis Lombardi, executive vice president, foodservice strategies, at WD Partners, a Dublin, Ohio, retail design and consulting firm.
Combine that with upscale décor and individual tabs ranging from $7 to $14, and “you’re making something that’s aspirational and also affordable,” he notes.
The popularity of fast-casuals is backed by the data.
Market researcher NPD Group reported fast-casual traffic rose 8 percent for the 12 months ending in November 2013, and counterpart Technomic reported that sales at fast-casuals grew 11 percent last year. Both of these data points bested performance in other restaurant segments.
The success of the fast-casual segment has inspired companies like DineEquity to test or consider some type of quick-serve option within existing Applebee’s and IHOP units.
Still, fast-casual forays are not always successful. Red Lobster ended its Seaside Express lunch experiment last year, and Denny’s effort, Denny’s Café, went nowhere.
Others find that success just takes time. Red Robin Gourmet Burgers’ fast-casual concept Burger Works has been retooled based on experience and insights gleaned from the initial locations it opened in 2011.
“Nothing is ever as easy at it looks,” Lombardi says.
Perhaps the most successful example of a fast-casual spinoff from a full-service restaurant chain is the Pei Wei Asian Diner, launched in 2000 by P.F. Chang’s China Bistro and now numbering nearly 200 units in 24 states.
Pei Wei sprouted from P.F. Chang’s recognition that it could not be all things to all people, and a large bistro might not work in all areas. Also, the flagship full-service brand saw that its takeout orders were growing.
“Our No. 1 complaint at the time was about takeout,” recalls chief executive Rick Federico, noting recurring issues such as a missing item or packaging problem with takeout orders.
Company officials considered starting a takeout-only location, and that gave way to the idea of an Asian noodle shop. “But as we put that to a product test and in front of customers,” Federico explains, “we thought it didn’t have the legs or popularity” of P.F. Chang’s better-known dishes.
Finally, the company came up with Pei Wei Asian Diner, serving a broad menu with creative, recognizable Asian-inspired entrées along with some popular P.F. Chang’s dishes.
“The differentiator between the two brands is P.F. Chang’s is the night out, while Pei Wei is part of the evening out—maybe [for diners] going to a movie or a family coming from soccer and not wanting to get dressed up,” Federico notes.
The operation of full-service and fast-casual restaurants is not the same, the CEO explains, and the first and most critical contrast is speed of service.
“How your food is engineered is different,” Federico says. Fast-casual kitchens are designed for quickness. The raw ingredients may be identical, but the menu is smaller, and some items, like sauces, can be made earlier, saving minutes.
Another way to gain speed is counter service, which acts as a governor for the ticket flow to the kitchen. For customers, counter service means the expectation for a gratuity is much less or there is no tipping.
Then there is takeout, which is 40 percent of Pei Wei’s business. Ironically, takeout orders have not changed much at P.F. Chang’s. “People become loyal to their brands and stay with them,” Federico says.
At Shula’s Steak Houses, the decision to enter the fast-casual arena with Shula Burger came in the wake of the Great Recession and was to some extent an opportunity to give loyal customers a more affordable option.
“People still wanted value and quality, but at a lower price point,” says company president Dave Shula, son of company founder and former Miami Dolphins football coach Don Shula. “We thought there would be a market for [the fast-casual concept], and it’s been proven true.”
Shula’s spent three years developing the better-burger concept, which serves customers quickly with an entrée price of about $10.
Along the way, a few changes were required. At first, all burgers were served medium, but many were returned to the kitchen because “a lot of people wanted them cooked all the way through,” Shula says. “So we now say in the ordering process that burgers will be cooked medium unless [guests specify] they want it well done.”
However, the biggest difference Shula found in running the two types of restaurants, other than price and speed of service, deals with labor.
“In full-service, with a high check average, you have people getting good tips, so you don’t have a lot of turnover,” Shula notes. Although some guests tip at Shula Burger, the check average is smaller, as is the compensation. As a result, the fast-casual operation deals with more entry-level employees, which requires more time spent training, he explains.
Both Federico and Shula note fast-casuals call for a smaller footprint, because the speed of service means tables turn faster and a bigger percentage of business is takeout.
And if the intention is to combine full-service and fast-casual in a single setting, the operation can become complicated. Carving out a section in a big, full-service restaurant to house a fast-casual operation comes with its own set of issues, says Lombardi. “It could be confusing to guests. What type of restaurant are they visiting? How do they order?”
Still, he adds, it may make sense for a company to experiment with operating a fast-casual restaurant by testing the potential concept within an existing full-service facility.
One restaurant operator that has full-service and fast-casual in the same box is Mama Fu’s Asian House, which offers limited service at lunch and table service at dinner. The 20-unit, Texas-based chain began as fast-casual only, but one franchisee, Randy Murphy, now the company’s chief executive, decided to give evening full-service a try.
“Fifty percent of our business was Monday through Friday lunch, and we weren’t strong on the weekends or dinner,” he recalls. “I thought maybe if we took advantage of the benefits of full-service, we could boost dinner.”
The result: Dinner business increased and ticket averages rose from $14 to $18, thanks to increased revenue from appetizers, desserts, and alcoholic beverages.
There was an initial downside to the two business models. “It’s more complicated than running a full-service restaurant all the time or a fast-casual restaurant all the time,” he says. “It also can be confusing for the customers. But we kept doing it because it was successful.”
Some employees who work the lunch shift also work at dinner, but others don’t have the experience or personality to be in full-service. As a result, the training is different for daytime and evening employees.
Even the dinnerware and silverware need to be higher quality at night, and that means having dishwashers that many fast-casuals don’t use.
To make sure customers aren’t impacted by switching from one dining style to the other, there are subtle changes inside the restaurant, such as signage that directs guests to a cashier during the day, and electronic menu boards that switch to mood lighting at night. “Having both can be done, but it takes considerable planning,” Murphy concludes.