By Amelia Levin, Foodable Industry & Research Editor
It’s all about the food.
At least that’s why many consumers have chosen fast-casual restaurants over fast food ones for the past several years. QSRs have clamored to stay in the game with their consistency, value, and speed propositions. Now, some veterans (Arby’s, Wendy’s) are bumping up the quality on their menus in an attempt to compete, while others already considered more premium (Chick-fil-A, Potbelly), are sticking to their guns.
Referred to as “QSR-Plus,” this burgeoning segment has to compete with the Chipotles and the Firehouse Subs of the world — and, in some cases, against themselves (more on that in a minute).
“QSR-Plus is made up of brands that have menu offerings approaching fast casual in perceived quality, freshness, and craveability, yet still offer QSR conveniences like a drive-thru, and they keep prices just below fast-casual territory, somewhere between $7 and $10,” says Mary Chapman, senior director of product innovation at Technomic.
According to Chapman, a group of seven QSR-Plus bellwethers—Chick-fil-A, Culver’s, El Pollo Loco, Freddy’s, In-N-Out Burger, Pita Pit, and Potbelly Sandwich Shop—collectively grew 2014 annual sales by 9 percent. All QSRs among the top 500 overall grew sales by about 3 percent. So that means there’s growth here.
“Some of the ways they are succeeding is by offering a smaller menu of unique and/or higher-quality items, continuing to leverage speed and convenience, and often providing an experience that’s a bit nicer/more unique,” she says. “They don’t all necessarily do all those things—but they do the ones that are compelling to consumers that make sense for their brand.”
Should fast casual chains be concerned?
Craig Dunaway, founder of the fast-casual chain Penn Station East Coast Subs, isn’t concerned in the least bit.
“Consumers want better food and they’re smart enough to figure out that premium ingredients come with a higher price tag,” says Dunaway. Fast food chains that have built their brands around lower prices and speed, but are suddenly raising prices for “premium” items, might find it difficult to steal away those fast-casual regulars.
“It’s inconsistent when you don’t have as good quality food, but you have a higher price point when everything else has a low price point,” says Dunaway, noting that consumers who want 99-cent tacos will go to Taco Bell, but those who want the high-quality ones will go to Chipotle and pay the price for that. “I think it’s hard to change consumer perceptions about who you are and what you do. For 45 years, we told you one thing, now suddenly we want you to forget all that, we’re about quality now. This helps us (fast-casual restaurants) a lot more than it hurts us.”
Arby’s contends it’s been able to straddle both the value/speed and food quality worlds with its Fast Crafted™ positioning, which the chain describes as quality, affordable food that is quickly yet skillfully prepared.
“We feel we win versus QSR because we have higher-quality products and a great value with the same level of convenience,” says Chris Fuller, vice president of brand and corporate communications at Arby’s. “We also feel we win versus fast casual because we have equally quality products at a better price and it’s much more conveniently served.”
Either way, competition remains fierce, says Josh Kern, chief marketing officer at Smashburger, a better-burger fast casual. “The restaurant business is always competitive and consumers today have more choices than ever,” he says. “At Smashburger, we’re just out to make the best burger on the planet. We are in the restaurant hospitality business and our focus is on serving outstanding food to Smashburger fans across the globe.”
While the burger segment in particular remains a “crowded space with many great concepts across the country,” the hamburger has remained a mainstay in this country. Regardless if you’re QSR-Plus or fast casual, “If you can balance a quality food experience with an outstanding customer experience, you will prevail,” says Kern.
Arby’s has also updated many of its restaurants with its sleek, new “Inspire” design “borrowing on the aesthetics of a fast-casual restaurant” to create a “warm, welcoming and convenient atmosphere,” says Fuller.
Through the first two quarters of the year, Arby’s has opened 18 new restaurants and completed 53 remodels systemwide. On average, Arby’s remodeled restaurants are experiencing sustained sales increases of at least 15 percent and many restaurants are experiencing increases of 20 percent or more, according to Fuller. The chain plans to open 60 new restaurants and complete more than 160 remodels with the new look through the end of the year.
Menu and design changes might have been the critical point that helped Arby’s score a positive same-store sales growth of +7 percent this past quarter. Cleary, consumers have responded, says Fuller.
Chicken chain Zaxby’s, a noted QSR-Plus leader that has surpassed the $1 billion mark, has also revamped its restaurant design with a farmhouse-inspired look this year, in honor of its 25th anniversary. The new prototype features an open kitchen and ordering line similar to Chipotle, along with antiques, Edison bulbs, and wooden communal tables that further signal that rustic, farm-fresh feel more consumers want these days.
The chain also continues to make operational changes to enhance speed of service and drive-thru. “Everything really is based on transaction management,” says Robert Baxley, chief operating officer. “We have looked at every step, from the field to the supply chain to the back of the house, to how long it takes to prepare orders, drive-thru expectations, packaging and more in order to create an incredible guest experience.” The conversational ordering platform, advanced POS systems, and separate in-store and drive-thru preparation areas have also helped improve efficiencies.
Smashburger has also considered changes and improvements to remain steadfast in the fast casual versus QSR-Plus arena, but sometimes those lines can get blurred. “Many concepts borrow what is working from all areas in restaurant hospitality,” says Kern. “For example, we have seen many fast-casual elements being deployed not only in the QSR space, but the casual space as well. With today’s savvy customer, you must be on your ‘A’ game more than ever to remain relevant.”
In an interview with Foodable Founder/CEO Paul Barron, Darren Tristano, executive vice president at Technomic, points out Potbelly as a blurry QSR-Plus brand. “They are one of the more difficult brands to argue that they are quick-serve versus fast casual because they offer a good quality product, but they are priced more affordably,” he says. “The biggest factor is drive-thru and price point.”
Potbelly prices sandwiches at just over $8, which is $1 less than Jersey Mikes, Firehouse Subs and other fast-casual sub brands. Not to mention, Potbelly execs have told Tristano directly they’re comfortable competing in the QSR-Plus arena.
When McDonald’s suffered same-store-sales decline not long after introducing additional new menu items, QSR-Plus competitors must have taken note. Most have gone the opposite route – scaling down the menu to zero in on what they do best. This has been the fast-casual way for years.
“We once introduced pizza on our menu and I gave five certificates to a regular customer I had who works in the meat industry and was going to give me some feedback on the new item,” says Dunaway of Penn Station. “I happened to run into him with his family after that and saw that no one was eating pizza. He said to me, ‘Sorry Craig, we come here for the subs.’ That wasn’t the only time I’ve heard that, so we decided to take pizza off the menu and stick with quality subs.”
This goes back to Dunaway’s theory mentioned earlier that “it’s difficult to change the perception people have of you.” In this case, that strong brand recognition of having tasty subs has dictated the simplicity of the menu.
Aside from quality and focused menus, consumers these days want customization – a platform fast-casual restaurants have built upon, and something with which QSRs are experimenting.
“Consumers have more choices than ever and even less time to experience a meal occasion,” says Kern of Smashburger. “Consumers expect the freshest ingredients, customization options and to be treated with care and respect. The cost of entry is higher today and they prioritize with not only their wallet but with a social network to tell many other people.”
As the lines between QSR-Plus and fast casual continue to blur, consumer priorities will become clearer, as will the need for restaurants of all types to hone in on food quality, menu, experience, and culture. Ultimately, they’ll need decide who they want to be when they grow up.