Article
Part II: Have QSRs blurred the line with fast casual eateries?
Upscale decor, premium offerings and improved customer service help the segment compete.
November 10, 2009
* Juan Martinez is principal of Profitality, a restaurant consulting firm that focuses on designing profitable hospitality venues.
As quick-service restaurants have worked to modify their operations, store design and branding to compete with the fast casual segment, the line between the two categories has blurred.
In Part I, Juan Martinez examined the differentiators of product quality, service model and production system.
Now in Part II, Martinez looks at how QSRs have adapted their décor, menu pricing, work force model and profitability metrics.
Is it the décor and facility design? Yes and no! I am certain you have all seen the evolution of retail designs the QSR category is going through. I have been part of many integrated design efforts, where we provide the operations platform design aspects of the project. I recall in almost all of them the objective was to develop a fast casual retail like design.
Some years ago, fast casual concepts were typically more costly to develop, but realities of the business dynamics and profitability pressures have driven fast casual concepts to undertake efforts to reduce development cost, much like all other foodservice categories. All restaurant categories are fighting to keep investment costs low, including making the facility more compact, since this is a key driver of cost. Additional benefits of a smaller facility include a reduction in operating costs, labor being the primary one; lower utilities; and a possible break in real estate costs. All of these could be an important factor to fuel Brand Growth.
QSRs from McDonald's to Jack in the Box have implemented the new designs to bring more customers inside the store to benefit from the higher check average. Burger King just launched its redesign effort, the 20/20 store model that it claims will have the brand competing with casual.
So is it décor and facility design? Perhaps.
Is it menu pricing? It certainly used to be, but both QSR and casual dining concepts have shifted this paradigm. QSR concepts now have higher priced items, using higher (perceived) quality components, while casual dine concepts have lower priced ones, squeezing the price continuum within the different service categories further.
TGI Friday's introduced a $5 menu, and McDonald's launched a premium Angus burger pushing close to the $4 mark. In fast casual, Quizno's has gone head to head with Subway's $5 footlong promo, even adding a smaller $4 sandwich.
Let's not add to this the focus currently that casual dining concepts have taken on price reductions through smaller portions. Many articles have been published on this topic recently.
So is it menu pricing? Possibly.
Is it the work force? Without a doubt, more employees come in direct contact with customers in the typical fast casual concept than in a typical QSR concept since the kitchens are typically more open. A typical fast casual employee needs to have more service training and usually makes a higher hourly wage. The latter brings in some additional operating cost pressures, especially since tipping is not usual in fast casual concepts.
We can bring back up the Subway model as an example of a more engaged employee, but even other QSRs are opening up the view to the kitchen, from KFC to Hardee's.
QSRs also have been fighting for years to bring down turnover rates and have begun implementing hiring tools and interactive training programs to find the employee that fits the task and then engage them during onboarding. In the process, the chains have found employees that like what they do and enjoy interacting with customers.
White Castle cross trains all its employees so that they can fill in anywhere. This may be part of the reason the chain has one of the lowest turnover rates in QSR.
So is it the work force? Could be.
Is it the profitability dynamics of the concept? Without a doubt the sales and profitability metrics and pressures of the fast casual category is different than QSR or casual dining. This was one of the theories behind the birth of this category: to be able to sell and make money by filling the gap of customer needs that existed between the QSR and casual dining categories. I would suggest that this gap is currently very narrow.
I believe that the new paradigm for the definition of a fast casual concept has clearly shifted dramatically in the last few years, even becoming nebulous. Some of the shift has been self imposed through internal efforts, in order to increase profits, while others have been driven by the foodservice competitor's efforts, a good majority by the QSR category, in order to drive sales.
According to the latest Technomic report on the fast casual category, growth was 10.8 percent in the top 100 fast casual restaurants. Some recent news articles have dubbed this category the darling of the foodservice industry and noted that a significant number of fast casual concepts will be opening this year alone.
Perhaps the growth is being attributed to the wrong category. Maybe some of these new so- called fast casual concepts are more QSR or casual dining derivative concepts. If this is the case, the growth should not be attributed to the fast casual category, but rather to an off-shoot of some other category; a new category in itself: a lean and mean fast casual machine!
Juan Martinez, Ph.D., PE, is principal for Profitality, an industrial and operations engineering consulting firm. You can contact him atjuan@profitality.com.
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