Drawing distinctions between categories is fast becoming a pointless exercise.
Classifying a restaurant as either “quick service” or “fast casual” has turned into an interesting parlor game. Does it matter much which moniker is applied to a brand? It depends upon who you ask. To the customer, it is of little if any significance. For those inside the industry, especially the people responsible for expanding franchise systems, claiming membership within the fast-casual segment was (emphasis on past tense) viewed by many as an asset. Rightly or wrongly, being crowned a fast-casual brand implied a level of superiority over the fast-food concepts with which they shared strands of their limited-service DNA.
Such a debate wasn’t on the table 35 years ago. Up until the mid-90s, it was clear if a brand was quick service (though to the chagrin of those of us within the quick-service segment, “fast food” was the more common descriptor). A fair number of today’s fast-casual brands existed back then, but the category had yet to be defined in terms accepted by the industry at large. Those brands were a small fraction of the limited-service marketplace compared to today’s universe of fast-casual restaurants, which now accounts for about 18 percent of revenue driven by the combined universe of quick-service and fast-casual brands.
It wasn’t until well into the 2000’s that the designation of fast casual carried significance and broad acceptance. What brand team wouldn’t prefer to be heralded for higher-quality food, superior décor, and an elevated level of service compared to their fast-food cousins? Such attributes were likely to be trumpeted as key differentiators for prospective franchisees and business partners. Similar talking points were developed for the juxtaposition with casual dining: fast casual featured lower menu prices, no tipping, quicker service, and a lower investment for the prospective franchisee. For those that found fast-food restaurants to be uninspiring, yet casual dining out of their investment range or operationally too complex, fast casual became Goldilocks’ choice.
By 2010, the fast-casual segment had achieved wide recognition. Brands positioned as fast casual were poised for significant growth as the USA moved out of the Great Recession. Fast casual was a petri dish of ideas compared to the formulaic world of fast-food restaurants. The diversity of cuisines, service models, and décor themes stood in contrast to conventional, old-school quick-service restaurants; a segment best defined by a drive-thru lane.
As we moved into the new decade, a key metric of the restaurant industry started shifting. At an increasing rate, more customers were consuming their meals off-premises. At Firehouse Subs, our dine-in business steadily receded, moving from 52 percent in 2012 to only 37 percent in 2019. Our on-premises business was historically higher than a typical sandwich shop, and that virtue was one of the points of validation for our classification as a fast-casual brand.
Firehouse Subs was not unique in feeling the impact from changes in consumer behavior. Perhaps the best evidence of the shift from dine-in to off-premises occasions was the blossoming interest in drive-thru service shown by many relatively mature fast-casual brands. During fast casual’s early stages of development, having a drive-thru as a standard part of your operating model almost merited an eviction notice from the brotherhood of fast-casual brands. After all, for decades, a drive-thru was one of the most defining elements of a fast-food restaurant. Some fast-casual brands had entered the drive-thru fray prior to the shifts in consumer behavior, but by and large, drive-thru was not the core focus of their development strategies. For example, Panera—1,421 units strong in the U.S. near the end of 2010—had only 42 drive-thru locations at that time. But evolving consumer behavior was a catalyst for more fast-casual brands to experiment with drive-thru. Some went a step further and added them opportunistically (today, Firehouse Subs has 66 restaurants with drive-thru).
Then came the pandemic, which became the accelerant for even greater off-premises use of restaurants. Virtually overnight, dining rooms closed across America. Brands with drive-thru lanes were in the optimum competitive position. However, having a drive-thru was not the only salve. Among fast-casual brands, where there is greater diversification in cuisine, if the menu lent itself to off-premises consumption, the brand was in much better shape than its rivals with less portable fare.
The fast-casual segment leaned into the attributes most closely associated with fast-food brands: speed and convenience. Some brands were already headed in that direction, having observed the shift to off-premises consumption long before COVID-19 raised its ugly head. Now, more than a year-and-a-half after the start of the pandemic, it is hard to find a brand that hasn’t shifted its focus to attributes that are intrinsic to the off-premises experience. With this shift comes the appeal of adding drive-thru lanes to the brand portfolio.
Therein resides the great challenge for many fast-casual brands: real estate. The irony is that real estate was the primary driving force behind the expansion of the fast-casual segment. Many brands now find their drive-thru options limited by the site attributes they found so attractive as a member of the fast-casual fraternity.
Unlike years past, the presence of a drive-thru is now of no consequence when determining the sandbox that a brand plays in. The line between quick service and fast casual is blurred to an unprecedented degree. Adding to the identity crisis is the effort on the part of many quick-service restaurant brands to up their game on product quality. The once ubiquitous heat chute has retreated to the world of convenience stores.
We are approaching a point where drawing distinctions between quick service and fast casual is a pointless exercise. When selling franchises, fast-casual development teams are better served emphasizing how their brands compete in terms of convenience and the appeal of their food consumed outside the restaurant. The value proposition has changed for the investor as much as it has for the restaurant guest.
The long-term impact of the pandemic remains to be seen. But among the industry segments, I believe that fast casual will experience the most lasting change to its business model. A visible sign will be the expansion of drive-thru service, but in the end, it may not be the most impactful. Due to the real estate factor, fast-casual brands in need of improving their off-premises experience will need to innovate. In that respect, I think we have only seen the tip of the iceberg.
Don Fox is Chief Executive Officer of Firehouse of America, LLC, in which he leads the strategic growth of Firehouse Subs, one of America’s leading fast casual restaurant brands. Under his leadership, the brand has grown to more than 1,190 restaurants in 46 states, Puerto Rico, Canada, and non-traditional locations. Don sits on various boards of influence in the business and non-profit communities, and is a respected speaker, commentator and published author. In 2013, he received the prestigious Silver Plate Award from the International Food Manufacturers Association (IFMA).
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