The state of fast food and fast casual, explained

You know that feeling. Or maybe you are used to it.

It’s around 1 p.m. You are in the office, at your desk. Hunger.

You need something familiar, quick, and relatively inexpensive. A high fat burger chain meal doesn’t fit your diet – you’d rather eat something hearty and healthy. Fast food, but guilt-free. In short, you need fast-casual.

Increasingly, Americans are turning to $15 salads and $13 burrito bowls rather than traditional fast food combo meals and drive-thru staples. And so today we’re going to look at both the relatively new wave of fast-casual hotspots like Chipotle, Sweetgreen, Potbelly and Panera Bread, as well as the fried old guard – McDonald’s, Wendy’s, Burger King and Taco Bell – and asking how they differ and whose future is.

Grab yourself some extra yuca fries and let’s dive in.

I’ll have a number one, hold the greasy fries
A chain of restaurants offering a standardized menu of quick and inexpensive meals is a proven recipe for success. Just ask Ray Kroc, the founding franchisee of McDonald’s, who bought the company from its founders in 1961 and expanded it to encompass more territory than the British Empire once commanded. Flash forward 67 seasons of Shamrock Shake, and the Golden Arches boast a staggering $183 billion market cap and a slew of hungry imitators to boot. The proof in numbers: according market data firm Statista, some 200,000 fast-food outlets with nearly 4 million employees serve customers across the United States daily.

Most fast food chains were founded half a century or more ago. Billions of customers served later have become entrenched incumbents. Yet the 90s saw the emergence of a trend that had taken full root in the 2010s and could now have the potential – if not to knock the burger king off the throne, then dull the shine of those arches golden.

Whether they were finally sick of the constant heartburn or took Morgan Spurlock’s Supersize Me to heart, (fast food) consumers suddenly felt comfortable shelling out a few extra bucks for ingredients. better quality. It wasn’t long before local businesses such as Denver’s Chipotle, St. Louis’ Panera Bread, and Jersey Mike’s Subs (guess from where) began to see serious success:

  • Chipotle grew from 16 Colorado-based locations in 1993 to over 500 in 2006 (during which McDonald’s invested and divested). It now operates in around 3,000 locations, generating $7.5 billion in revenue last year.
  • Panera has grown from 100 sites in the Saint-Louis region in 1993 to more than 2,000 today; Manhattan’s Shake Shack opened in 2001, went public in 2015 and now feeds worshipers in 250 locations around the world.

With the proverbial meatball squarely in their backyards, fast food chains were quick to respond. McDonald’s led the way in 2018, bidding farewell to preservatives, fake colors and many artificial ingredients in its burgers while boasting new growth on its salad menu.

Of course, the fast food titans were reacting as much to the shrinking bottom line as to the trend towards a slimmer waistline. A 2018 report by foodservice consultant Technomic, conducted for the National Restaurant Association, found that fast-food revenue growth was expected to be just 4% for 2019, while fast-moving newcomers were in line for double that number.

Avoid the end of the world
But that was 2019. Then came 2020. About 10% of all American restaurants closed permanently, according to a May 2021 report from foodservice research firm Datassential — the worst result on record.

Unsurprisingly, due to a stronger capital base, quick service restaurants with more than 500 locations (fast casual dining) reported the lowest number of closures.

Embracing online ordering has proven to be a key success factor. In August 2021, The Wall Street Journal reported that Cava, the fast-casual Mediterranean chain, saw its share of digital orders rise from 20% before the pandemic to a peak of 70%, before settling at a doldrums. 45% agreement. According to the same publication, digital controls accounted for the majority of Chipotle’s sales in the first three months of 2021 – a first for the company.

“No matter the cuisine, fast-casual brands that embraced off-site tactics such as online ordering, curbside pickup and third-party delivery before the pandemic were ahead of the game,” wrote the Firehouse Subs CEO Don Fox in an op-ed for QSR Magazine, a fast food trade publication.

And perhaps no fast-casual chain exemplifies this better than the king of fast-casual salads: Sweetgreen.

The sweet scent of success
During the pandemic, Sweetgreen’s hassle-free digital takeout has helped it weather the storm. The company’s app, which previously processed 50% of orders, was responsible for more than 75% in 2020. Over the next year, the Los Angeles-based salad company became a lunchtime staple of Labor, which led to its IPO in November at a valuation of around $5.3 billion, with the stock quickly reaching 76% above the asking price after one day of trading.

In early March, the salad specialist released its first-ever earnings report as a public company, beating estimates with $340 million in sales and announcing plans for 35 new locations (in addition to its current roughly 140). and expected revenues of over $500 million. in fiscal 2022. Sweetgreen’s earnings-to-location ratio far exceeds those of Chipotle and McDonald’s. Basically, its beefless menu avoids the worst of inflation, its projected profit margin of 16% to 17% outweighing a typical restaurant’s 6 to 9%.

Imitation is the best form of flattery: Yet even Sweetgreen – the complete antithesis of cheap and greasy fast food chains – can’t help but copy the old guard’s successful business model. A key way to generate new sales: drive-thru.

And it’s not the only fast-casual to adopt the classic take-out tactic:

  • In March, Sweetgreen announced that it would open its first drive-thru in Schaumburg, Illinois by the end of the year. Customers will have the option to pre-order online before picking up the goodies. Chipotle fans will recognize this as a concept the Mexican steakhouse chain popularized in 2019 with its Chipotlanes.
  • Chipotlanes has been so successful that the company has accelerated its expansion, according to QSR Magazine. About 100 new drive-thrus went live in 2020, while 80% of the 215 new Chipotle locations opened in 2021 included the popular feature.

In February, Jimmy John’s – acquired by Arby’s parent company Inspire Brands in 2019 – opened its first drive-thru to incorporate online ordering. Shake Shack opened its first-ever drive-thru in Maple Grove, Minnesota in December, with plans for 10 more nationwide by the end of this year.

The adoption of drive-thru signals another crucial trend: expansion into the suburbs. Indeed, expensive salads and high-end burgers are no longer just for the sophisticated city dweller. Eighteen of Sweetgreen’s 31 new locations opened last year in suburban areas — a strategy the company says it adopted in response to the rise of remote working and the decline of dense urban work hubs.

Companies to watch
It’s a bit late to enter the ground floor at Chipotle, whose stock price has risen 3,700% since its IPO in 2008. The burrito stock fell 16% in February, but rallied after beating earnings estimates. CEO Brian Niccol credited the price hikes with warding off the pains of inflation. Chipotle’s share price has since stabilized, down less than 2% in 2022.

Panera bread life as a public company ended in 2017, after German conglomerate JAB, which also owns Peet’s Coffee and Einstein Bros. Bagels, acquired the then struggling company for $7.5 billion. After investing heavily in digital technology, JAB announced in November that Panera would go public through a merger with a SPAC headed by Shake Shack founder Danny Meyer. From 1997 to 2017, Panera’s stock growth outpaced that of all other publicly traded restaurants, with its stock price appreciating nearly 10,000% (the S&P 500 only rose 200 % over the same period, McDonald’s grew about 1,350% and Wendy’s grew about 275%). ).

This brings us to Shake Shack. While the burger chain may not claim to be health-centric, it does have a loyal following willing to pay a premium for high-quality ingredients — which seems to be not just a general trend but one that’s growing in strength. The company went public in 2015, posting $715 million in revenue for 2021, up more than 40% from 2020 and 20% from 2019 before the pandemic. It plans to add 50 new sites this year. The shares have steadily climbed 50% since its IPO.

Carry: The death of McDonald’s has been predicted more often than the return of the McRib, but there’s a reason it doesn’t materialize consistently: The real estate land game of old-school chains is nearly impossible to recreate. Yet younger, sleeker chains are innovating and adapting their distribution footprint to match and meet a unique and highly desirable market cohort of their own.

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