Fast casual restaurants sizzle with combo of speed, price and freshness

While the U.S. restaurant industry saw sales cool last year, one segment was piping hot.

Sales at fast casual chains – which offer higher-quality ingredients than are typically found in fast food but at a lower price than at sit-down restaurants – grew a sizzling 63.3 percent, according to a study commissioned by the Fast Casual Alliance, a group of industry executives.

That compares with a 1.2 percent dip in 2008 inflation-adjusted restaurant sales overall, the first such drop in nearly 20 years, according to the National Restaurant Association.

As the Great Recession of 2008-09 wrecked household budgets, consumers turned to fast casual "as a value-centered way to continue to eat out," said Paul Barron, publisher of FastCasual.com, an industry Web site.

He's also chairman of the Fast Casual Executive Summit, an industry think tank meeting Monday and Tuesday in Dallas to talk about the future of the segment.

The reason for the growing popularity of chains such as market leader Panera Bread of St. Louis and Beaumont-based Jason's Deli is simple: "the value proposition – high-quality food and a high-quality experience for a much lower cost," Barron said. "It matches so closely with what the consumer is dealing with in today's economy."

Barron said another reason for the higher sales is that many fast casual chains that were launched in the years leading up to the recession have continued to add outlets.

The segment has been the darling of the restaurant industry for more than five years, posting annual growth rates that look like big-screen TV sizes.

That's in part because of the segment's small size relative to the industry as a whole. With overall "eating and drinking places" posting $386.5 billion in 2008 sales, even a robust year yields small percentage gains.

By comparison, fast casual sales last year were an estimated $16 billion, according to the Alliance report, based on a study from the research firms Technomic Inc. and Food Action Group. Segment sales are expected to reach $20 billion this year, a gain of 25 percent, according to the report.

Dining's sweet spot

Barron and others say the growth is real, occurring largely because, even in the chockablock food business, the chains found a sweet spot.

Fast casual outlets offer breads, soups and salads, many with organic ingredients, in a quick in-and-out setting with no servers. Hence, no tip.

"Fast casual filled a void in the restaurant industry for the consumer that was cooking at home a lot," said Barron. "They realized they could get a quality product ... and could do it for less than what it would cost to prepare a meal at home."

On a sultry Friday, Richard Merchant, 52, of Frisco was finishing up a ham sandwich and soda at the Corner Bakery Cafe in the West End.

A fast-food customer "in the 80s, when I was younger," Merchant said he's drawn to restaurants such as Dallas-based Corner Bakery and Jason's Deli because of the freshness of the food.

"The food is not processed food," said Merchant, who eats lunch out at least four times a week. "This food tastes better."

Experts said entrepreneurs are drawn to fast casual because of the lower real estate costs; individual locations are smaller than the typical casual dining restaurant. Labor costs are often lower, too, because the menu is less complex.

Partly as a result, the eateries are often more profitable.

Among large Texas-based restaurant chains last year, the greatest percentage increases in revenue per outlet, a key measure, were found at Corner Bakery, Wingstop of Richardson and Schlotzsky's deli of Austin, according to Technomic. All are considered fast casual.

Many experts say that fast casual's gains have come at the expense of well-established restaurant segments as consumers trade down from casual dining or outgrow fast food.

Blake Bernet, senior vice president and general counsel for Corner Bakery, said the migration of consumers from casual dining has accelerated over the last three to five years.

Price is king

"The primary thing that the downturn in the economy did was focus people on what they're spending for meals," Bernet said.

Many of those with the least to spend have turned to fast food, boosting sales at many chains in that segment. McDonald's, the world's largest fast-food chain, has continued to post same-store sales gains during the downturn.

But fast food tends to appeal to young people and men – other consumers typically seek alternatives.

With overall restaurant spending down, both fast-food and casual dining players have scrambled to keep customers that might defect to fast casual.

McDonald's this summer launched a third-pound Angus beef burger aimed at the crowd that won't balk at paying $4 for a sandwich. And the eatery has attracted fans with its higher-end coffees.

Dallas-based Chili's Grill & Bar, once a corporate cousin of Corner Bakery, offers a "bottomless express lunch," including unlimited chips and salsa, soup and a Caesar or house salad, for $6.29.

Each restaurant segment hopes to regain market share when budget-conscious consumers come out of hiding.

But there are limits to what each group can do.

Fast food is hamstrung by its basic tenet – meeting consumers' need for speed limits menu options.

"When a consumer walks into Panera Bread, they don't expect three-minute food," Barron said.

Likewise, the casual dining segment, with its much larger restaurants and bigger staffs, can lower its prices only so much.

As the segments jockey for position, consumers are the winners with more options for quicker, less expensive food that is also more healthful.

"Consumers have shifted their buying habits," Barron said. "Consumers that are going to emerge on the other side of this downturn are much more cognizant of value than they ever have been."