Fast Casual Restaurant Franchise Study

 

Fast Casual Restaurant Franchise Industry Report

This study is a brief review of the U.S. fast casual restaurant franchise industry. It is based on data collected from the Franchise Disclosure Documents (FDDs) of 13 fast casual restaurant franchises and published industry sources.

Definition

In the context of this report we define a fast casual restaurant as a hybrid of quick service and casual dining that offers the consumer more freshly prepared and customized product than a fast food restaurant.
diner
The fast casual restaurant sector, while being the newest and the fastest growing sector of the food industry is also a recent phenomenon. The fast casual industry caters to current consumer needs by offering a cheaper alternative to more expensive restaurants while offering customisation and quality ingredients.

The experts in the restaurant industry have been struggling with a definition and a set of guidelines for what specifically a fast casual restaurant is. For example, it is agreed that a fast casual should not have a drive-thru service nor should they provide table service. Experts have also found it difficult to determine a price range that will aid in defining a fast casual restaurant or franchise. The typical cost per meal is in the broad range of $8–$15 according to QSR report "Confounded by Fast Casual"

 

Market

Market Value

The fast casual restaurant industry outperformed all other categories of the restaurant industry in 2009. According to Technomic's list of the Top 100 fast-casual restaurants the fast casual restaurant industry experienced 10.8% growth in sales from the previous year with nearly $20 billion in total sales. The industry is poised for continued growth as more consumers spend their disposable income in fast casual restaurants, such as Chipotle and Panera Bread.

Market Volume

waitressIt is very difficult to estimate exactly how many units there are in the fast casual industry. As referred to earlier, there is no specific definition of the sector and as such it is difficult to estimate an exact number of how many units there are. 

Competition

The market for fast casual restaurant services is extremely well established. A fast casual franchisee will be in competition with a variety of fast food and quick service restaurants, casual full-service restaurants and other dining establishments. The fast casual restaurant industry is highly competitive with regard to concept, price, location, food quality and service. Many full service and fast food restaurant chains and franchises are either converting to fast casual restaurants or expanding to include the fast casual concept.

One of the leaders of the fast casual restaurant sector is Moe's Southwest Grill. Sales for this franchise chain grew by 15.9% in 2009 according to Technomic. Moe’s Southwest Grill offers franchises for an estimated initial investment of $252,000 to $634,000.

Growing Market Segments


Mexican Food    Mexican Fast Casual Restaurants

According to findings by Technomic nine of the ten fastest growing Mexican limited-service restaurants last year were fast casual chains. The fast casual segment within the limited service Mexican restaurant sector grew in sales by 11.8% to $3.7 billion and experienced unit growth of 6.6% to a total of 3,348 units. In comparison, within this sector, quick-service restaurant sales grew by 1.8% to $7.4 billion and declined in units by 0.4%.

•    Bakeries

Bakeries are a notable part of the fast casual restaurant franchise industry. The Bakery sector generated $4.3 billion in sales in 2008 according to Technomic.* Bakeries do more than simply serve baked goods; they are also leaders in serving up healthy sandwiches, soups and salads in a fast casual environment.
 

*Chainleader; http://www.chainleader.com/article/CA6658199.html


Trends

Healthy Foods and Menu Diversity

Following the national trend toward healthier eating, grilled foods are rapidly gaining in popularity over fried foods. According to the National Restaurant Association, nearly a third of operators say their customers are looking for a wider range of food choices from restaurants, while 19% say customers are seeking healthy alternatives.* This trend has been very prevalent in the fast casual industry and is one of the reasons for the success of the industry. By offering today's health-conscious and yet taste-loving consumers a better alternative to the higher-calorie and fat-laden menu offerings of their competitors they are increasing their penetration of the market. Charley's Subs, for example, are offering the opportunity to own and operate a franchise which has a menu featuring nutritionally beneficial foods, including made-to-order grilled steak or chicken.
 

The food that is prepared in fast casual restaurants is nutritious and generally made from local produce wherever possible. Fast casual restaurants are more likely to promote free range or organic food. Their menus also feature a wider and more daring range of ethnic fare, which gives chefs and consumers the opportunity to try new tastes.
 

*National Restaurant Association

 

Top chefs choose fast casual

burgerThe flexibility and the freedom to create new menus has led to some of the most famous chefs in the food industry to  “trading down” from fine dining to fast casual. Recently, household names like Bobby Flay, Rick Bayless, and Wolfgang Puck have invested in fast-casual operations. While having more opportunity to diversify with food a fast casual restaurant still offers ambiance and profits for the operators.

Locally sourced foods

Consumers are demanding more nutritious, organic or locally sourced produce. The emphasis on local and seasonal ingredients is a growing trend in the fast casual industry and according to the National Restaurant Association, 70% of adults say they are more likely to visit a restaurant that offers locally produced food items.* To ensure that they are offering their customers the freshest quality ingredients, many chefs view being a part of the fast casual industry as an opportunity to source all their ingredients locally or indeed to grow their own. It gives them the opportunity to experiment with flavors and textures.

*  National Franchise Association, Restaurant Industry Facts


Conversion

New restaurants and franchises are opening frequently and many traditional quick-serve concepts are converting to a fast-casual format. For example Baskin-Robbins opened Café 31, a fast-casual spin-off concept. Since fast casual restaurants are about enjoying the in-store ambiance, Baskin-Robbins decided to create menu items that would encourage customers to stay and savor the experience. Menu development isn’t the only upgrade quick service restaurants need when transitioning to a fast-casual concept. Store design is just as important in creating a premium experience.

Franchises


The table below provides an overview of the estimated initial investment required to open the 13 fast casual franchises covered in this report. It includes the initial franchise fee payable on signing the franchise agreement and the ongoing sales royalties’ payable to each franchisor. It also contains a detailed profile of each franchise which presents these costs in more detail.  The profiles are extracted from the latest Franchise Disclosure Documents (FDD) of the 13 franchisors.

Name of franchise    Initial Investment Royalty Estimated Initial Investment - Low Estimated Initial Investment  - High
Subway $15,000 8% $114,800 $258,300
Pita Pitt $25,000 6% $220,685 $357,000
Schlotzsky's $30,000 6% $519,300 $758,500
BB $25,000 5% $430,500 $656,000
Beach Hut $29,000    5.5% $172,600 $236,000
Café Yum $35,000 6% $348,000 $499,000
McAllisters Deli $40,000 5% $417,500 $949,000
Dagwoods Sandwich Shoppe $20,000 6.5% $306,800 $346,000
Eriks Deli Café $10,000    5% $355,150 $679,150
Salad Works $30,000 5% $220,000 $558,223
Blimpie $18,000 7% $91,032 $296,700
Submarina $25,000 6% $192,900 $316,500
Charleys $19,500    5% $126,500 $408,500
Moe's Southwest Grill $25,000 5% $252,000 $634,000

 

Outlook

The fast casual sector of the food industry has out paced both the quick service and casual dining sectors with double-digit annual sales growth. Fast-casual menus offer premium ingredients, simple recipes and more customization. This translates to consumers as a healthier and more satisfying meal that is worth a slightly higher price. The fast casual sector is forecast to continue to grow and expand for the foreseeable future as more new fast causal restaurants and franchises open and more existing fast food and full service restaurants and franchises convert to fast casual to take advantage of the success of the industry.
 

Franchise Direct’s Disclaimer

 

Fast Food Franchises...

Pudgie's Naked Chicken Co. Become part of a huge franchise success story with Pudgie's Naked Chicken Co. Minimum Cash Required: $200,000. Pudgie's Naked Chicken Co. Franchise.

Dickey's Barbecue Pit Dickey's - founded in 1941 on a family's passion for barbecue and still serving the best. Come join our family! Minimum Cash Required: $100,000. Dickey's Barbecue Pit Franchise.

Bliss Cupcake Café Sick of working for ‘The Man’ and ready to move to a happy place? Bliss is it! Minimum Cash Required: $150,000. Bliss Cupcake Café Franchise.


Jake's Wayback Burgers Join one of the hottest fast-casual restaurants, now growing dynamically! Award-winning premium burgers and lots... Minimum Cash Required: $100,000. Jake's Wayback Burgers Franchise.

Cheeburger Cheeburger Searching for your next career challenge? We have what you're looking for, and we make it easy! Minimum Cash Required: $150,000. Cheeburger Cheeburger Franchise.

Kona Ice Kona Ice is the most innovative new brand in the franchise industry - proven, profitable and fun! Minimum Cash Required: $20,000. Kona Ice Franchise.




 

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