Panera, Chipotle, and the Upstarts Nibbling Away at the Restaurant Giants

Fast-food giants and casual sit-down chains alike have trembled for years at the unstoppable rise of the fast-casual restaurants. Unable to lift sales, McDonald’s and Applebee’s are both trying to figure out how to excite customers as all the buzz—and sales growth—moves toward such joints as Chipotle Mexican Grill and Panera Bread.

For all you hear about Obama’s favored burrito bar, Chipotle and other waiter-free restaurants actually remain a fairly small part of the restaurant industry, representing roughly 7.7 percent of total sales, according to data from researcher Technomic. And following years of rapid growth are signs that this market is maturing and coming under pressure from weak consumer spending. Panera, for instance, reported Tuesday that same-store sales were flat last quarter and up only 0.1 percent in the first quarter, the weakest results since 2009.

The features that link Panda Express with Five Guys, for example, are the lack of table service, a reliance on dine-in traffic rather than drive-through, “better quality” offerings than fast-food rivals, and an average per person expenditure of $9 to $13 for a meal. So Outback Steakhouse doesn’t count. Neither does McDonald’s, with its drive-through windows and $5.60 average meal. These are the biggies, according to Technomic:

Five largest fast-casual brands by 2013 sales
1. Panera Bread
2. Chipotle Mexican Grill
3. Panda Express
4. Jimmy John’s Gourmet Sandwiches
5. Five Guys Burgers and Fries

These restaurants have cheaper prices than full-service restaurants, where you also have to tip, and better food than the typical fast-food chain. Many of these fast-casual places also tout their sustainability goals and the freshness of their ingredients. The economics, the quality, and the novelty are proving a potent mix for young, high-income millennials.

Fast casual is still a niche, but it’s the segment expanding most quickly. There are roughly seven times as many fast-food restaurants as fast-casual eateries—yet both categories notched roughly a $9.3 billion increase in sales from 2010 to 2013, according to Technomic. That’s why Yum Brands—which owns Pizza Hut, KFC, and Taco Bell—has joined other mainstays of fast food in experimenting with upscale concepts.

Darren Tristano, executive vice president of Technomic, says there’s no doubt the fast-casual market is maturing. New or growing entrants in this segment will compete with the established fast-casual chains, too. In the near term, fast-casual growth will come largely from opening new restaurants.

For all the excitement, the Jimmy Johns of the world won’t overtake the Subways soon. Fast food is cheaper, and it’s everywhere. It’s hard to beat that.

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