The Upscale Fast Casual Segment Keeps On Climbing

The Upscale Fast Casual Segment Keeps On Climbing

By Adria Valdes Greenhauff, Editor-at-Large

With restaurant lunch sales suffering and chains like Chipotle taking a tumble in profits, it may seem like the entire food industry could be facing some challenging times ahead. Luckily, despite restaurant business seeing slow growth over the last year, there is one segment that continues to thrive. 

Some know it as high-end fast casual. Others have affectionally dubbed it fast casual 2.0. No matter what you call it, this segment, which includes brands like Panera Bread, Blaze Pizza and Shake Shack, is making steady headway into 2017. 

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These Restaurants are Outperforming Chipotle on the Stock Market

Once upon a time, Chipotle would dazzle investors by exceeding expectations every quarter. But ever since the food safety crisis, the brand is having a difficult time recovering.

Chipotle has seen a 14.8% decline in quarterly revenue. However, the brand remains optimistic.

“While this year has been a year of reinvestment, we are now focused on continuing to further recover sales and improve our economic model to create long-term shareholder value,” said Steve Ells, Chipotle co-CEO in a statement.

But today two small investors have called for the chain to replace Mr. Ells with an independent director.

While the fast casual brand has been struggling, other restaurant chains have been on the rise.

Some of these brands includes, Panera Bread, Domino’s Pizza and BJ’s restaurants.

Dominos has seen a 48% increase in shares this year. For quarter three, the pizza chain saw a 16.9% spike in revenue and a 24.8% increase in net income. Panera bread, Darden and Bj’s recorded revenues higher than this.

With that being said, the restaurant industry as a whole is seeing less investors interested.

”An equal-weighted index of the 11 S&P 1500 restaurant stocks that reported third-quarter earnings is down 5% this year. Even Panera Bread, which reported 2.9% revenue growth in the third quarter, has seen its shares fall 1.5% this year. The company's net income sagged 1.3% in the third quarter,” writes “USA TODAY.”

Darden saw a 27.5% spike in net income at 110.2 million. But, the group’s shares are down by 3.1%.

Check out ten brands turning Chipotle into roadkill here.

Although investors seem less interested in restaurant brands, consumers are not. Yet, consumers are choosing to visit less chain restaurants and instead are choosing to explore new innovative concepts.

The market continues to get more crowded, giving guests much more options on where to spend their money. According to Foodable Labs data, Social Restaurant Visits (SRVs) for the industry as a whole have seen a spike.

We recently covered the “high-flying” restaurant brands in this market that have seen an impressive increase in SRVs within the last few months. Check out how these brands are appealing to today’s consumer here.

Why Are Chain Restaurants Losing Foot Traffic?

Exterior of Pizza Hut 

Exterior of Pizza Hut 

Unfortunately, some major players in the industry have had a tough 2016.

Cosi just filed for bankruptcy and YUM Brands (the parent company of Taco Bell, KFC and Pizza Hut) just announced a sales decline at Pizza Hut.

“The US market was influenced by an unsuccessful promotion and the competitive environment,” said Greg Creed, CEO of YUM Brands.

Sonic drive-in is also not performing as its executives and investors hoped. “The shortfall was largely driven by lower-than-expected traffic, reflecting lower consumer spending in restaurants and continued aggressive competitive activity,” said Cliff Hudson, CEO of Sonic in a press release.

Both of these executives have said their chains are under major pressure from the competitive landscape, meaning other emerging concepts are taking away their customers.

But for some established brands, trying to attract the distracted consumer is the least of their worries. Chipotle, for example, is in full-on recovery mode. The “fresh mex” chain sales have drastically declined due to its food safety crisis, specifically, the brand saw sales decline by 27% for the first half of the year.

So what is costing consumers to not visit these establishments as much? Well, one contributing factor is that commodity prices are down. So eating at home is more appealing to consumers, especially as “food away from home” is on the rise according to this study. Even though lower food costs is also a good thing for restaurants, promotional costs evidently have increase to compete in the market.

The increase in wages has also attributed to the sales decline.

Wage inflation rose by 5% in July, according to William Blair Research. 12 states have increased their minimum wage this year. California, the largest restaurant state experienced a 11% spike in wages from $9 to $10. Read more