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Why Expansion to Fast Casual Works for Established Restaurant Brands

Danni Santana
Why Expansion to Fast Casual Works for Established Restaurant Brands

Casual dining operators’ growing interest in opening fast casual concepts can be best explained in two ways: they are cheaper to operate than existing stores and appeal better to younger consumers.

Fast casual also represents a booming segment of the restaurant industry currently, with sales expected to grow at a healthy 7 percent clip over the next five years, according to investment research firm Morningstar. Fast casual brands have also reported a 10 percent sales spike since 2014, far outpacing other concepts.

And while full-service restaurants require more labor and real estate to accommodate guests, resulting in higher labor and rent costs, the exact opposite is true for fast casual chains like Chipotle or Sweetgreen. These brands generally require half the square-footage of their casual dining counterparts to operate. They also feel younger, hipper, and more tech-savvy than their more formal predecessors. (Chipotle alone has cited technology as a chief reason it redesigned its restaurants, dedicating more space for preparing and distributing digital orders.)

“You do not need a ton of capital to open a fast casual concept,” said R.J. Hottovy, senior restaurant analyst at Morningstar. “They also serve as a great way for casual dining chains to incubate new products and technologies that can be implemented at flagship stores.”

A Piece of the Fast Casual Pie

Having virtually the same order count as quick service restaurants, while also charging more per meal — due to the selling of higher quality food — has streamlined the success of fast casual chains to date. And casual dining restaurant groups now want their piece of that pie.

The Cheesecake Factory unveiled its new fast casual concept Social Monk Asian Kitchen in Los Angeles last month. Meanwhile, competitor Bloomin Brands, owner of Outback Steakhouse, also launched a fast casual spinoff called Aussie Grill in Saudi Arabia and Hong Kong this year, with plans to open its first domestic location in April, the company announced last week. Aussie Grill was created as a means to grow international sales, a Bloomin Brands spokesperson told Skift Table via email.

“We will have a few locations coming to the Tampa Bay area, where our home office is located, to fine tune as needed,” the representative said. “The fast-casual service model appeals to a variety of demographics. It offers guests a different experience than a full-service restaurant.”

In the case of Bloomin’s Aussie Grill, it could also open the door to more franchisees because of their smaller footprint and lower operating costs, as reported by Restaurant Business. And it’s betting on the recognition of the corporation’s most successful and well-known name, Outback, to drive business to Aussie Grill.

Some restaurant groups are also opting to buy more established fast casual chains. Dine Brands CEO Stephen Joyce has repeatedly hinted to investors that the company is in search of adding a fast casual concept to its restaurant portfolio, which currently includes Applebee’s and IHOP, both full-service restaurants.

“There is plenty of opportunity to add brands,” Joyce said at Barclays Eat, Sleep, Play Conference in December. “But we want to start small, and are looking at categories we are not in, such as fast casual and quick service.”

It’s not a given that companies new fast casual models will succeed. But there is a higher probability of success with larger restaurant groups supporting day-to-day operations, Hottovy said. Many upstart fast casual concepts file for bankruptcy soon after opening shop.

As for longstanding casual dining chains, they still play a role in boosting overall sales, he added.

“There is still a place for causal dining restaurants because they are satisfying people’s need for experience,” said Hottovy. “But for other consumers that want to get in and out, this is why companies are getting more into fast casual.”

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