If you’re in the restaurant business, you have undoubtedly heard the term “fast casual” and its growing take of the market. While it presently only accounts for about 7.5 percent of the total market, it is expanding rapidly. According to a report by Technavio, market research analyst predicts this market to grow at a rate of more than 10 percent from now until 2020. The other segments, full service and fast food, are expected to grow at less than half that rate, with many full-service food chains struggling.
The Draw
Fast Casual is based on a fast food style ordering system that provides quick service in a more upscale environment. Menus are often on boards behind counters where patrons stand in line to place their order. Panera Bread and Smashburger are two such concepts that are making it big in the fast-casual market. Shares of Panera Bread have jumped more than 8 percent this year, and the chain is being acquired in a deal valued at approximately $7.5 billion.
Demand Versus Supply
The demand for fast-casual has placed a tremendous increase in the need for small-footprint spaces in business districts or by college campuses. In general, these range from about 1,500 to 2,500 square feet. For those entrepreneurs looking to jump on the bandwagon, take a ticket and wait in line. You will find most locations that are prime venues for this concept in a bidding war. Add a patio and make sure you bring your bankroll. According to Perry Jones, of Pie Five—an expanding fast-casual pizza chain—every site they look at leasing has at least six other lessees competing for the same space, driving up the price by 10 percent or more.
A Look at the Margins
It’s proven that consumers are willing to pay more for nutritious food in a fast-casual atmosphere. The average check is anywhere from $9 to $12 while fast food comes in at about $6 and waiter-friendly restaurants, such as the Cheesecake Factory, come in at a little over $20. The question is: Are consumers willing to pay enough to make up for that 10 percent increase in rent? For some, the answer is no. There’s a fine line between having the luxury of being served and the quick service of fast-casual. One way around this dilemma is to find a larger space and convince the landlord to divide it. This can often be a win-win situation.
The theory that bigger profits can be found in smaller places by lowering labor costs and increasing volume is at the core of fast-casual’s appeal. While many have proved the concept successful, others are struggling. Noodles & Company has plans to close 55 of their locations this year. Rita Restaurant Corp, owner of the Don Pablo’s taco chain as well as the parent company behind Souplantation and Sweet Tomatoes filed for bankruptcy protection at the end of last year. To go a step smaller, some successful chefs are turning to delivery-only restaurants, even further cutting down on operating costs. Another service many restaurants are leaning toward in search of multiple streams of revenue is catering, which can often add at least $1,000 to daily sales.
Options
Because of the competitive nature and increasing price tags on smaller footprints, particularly the end caps, consider second generation restaurants. These are restaurants that have gone out of business, but still retain existing kitchen and infrastructure. Many of the larger chains only want to aquire a building in the raw and will bypass a second generation locale because of the necessary steps required to convert.
While it may sound daunting, don’t give up. Many restaurateurs have found their perfect location while driving the streets of their favorite neighborhood.
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