News

CIT: Fast casual has changed landscape through customization and quality

November 6, 2014

The fast casual segment continues to outpace the rest of the restaurant industry and will continue to do so, despite having higher price points than its QSR competitors, according to Bob Bielinski, managing director of CIT Corporate Financie.

"Fast casual chains are changing the landscape of the restaurant sector through customization and better food quality, and by creating more comfortable environments," Bielinski said in CIT's video series called "Now Serving Growth in the Restaurant Sector." "These chains are seeing growth because they are rewriting the rules of the business and are adept at meeting consumer needs, while continuing to add units and grow sales."

Many quick-service and casual dining restaurants are reacting by remodeling restaurants, improving the quality of their food and utilizing new technology. As a result, these companies will likely seek financing to invest in their restaurants and improve their overall value proposition, Bielinski said.

Other insights include:

• Casual dining restaurants continue to struggle: Same-store sales are mixed and traffic trends are weak. Chains that are faring better have an offering that resonates with their core customers.
• Franchisee consolidation is likely to continue at a rapid pace: With franchise owners retiring, small and large franchisees looking to acquire stores, and big domestic chains selling their corporate stores, the space will likely see more consolidation in 2015.
• Private equity interest remains high: Private equity firms have shown that they’re very interested in backing restaurant companies and large franchisees and will continue to do so if the debt markets support it. As private equity firms look to divest their portfolio companies, activity is likely to accelerate in 2015 if the capital markets are strong and the economy continues to improve.
• Bank regulations could impact the sector: Regulations could put added pressure on restaurant companies’ ability to build their businesses. Restaurants rely heavily on debt and need capital for remodels, new units and acquisitions.
• Increased costs may impact growth strategies: In the face of increased costs from commodities and wages and a general lack of pricing power in the industry, some companies will have to focus on the best locations for new units to get their return on investment.
• Technology is having a dramatic effect on the industry: With pizza chains leading the charge via mobile ordering apps, QSRs will follow in kind. More casual dining chains will roll out tablets so customers can use them to place orders, play games and pay.