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8 reality checks on the fast-casual market

Leaders from some of the industry’s quickest growing fast-casual chains gathered Friday in Chicago at researcher Technomic’s Fast Casual 2015 Trends & Directions Conference, a lead-in to the NRA show. The one-day deep dive into the segment shed light on what’s helping these brands flourish, as well as what’s worrying their operators. Here are some of the takeaways.

1. The NLRB won’t kill franchising

While there was serious concern the NLRB’s pending redefinition of franchisors as “joint employers” of franchisees’ staffs could disrupt franchising of fast-casual brands, the reclassification might not close off that growth avenue, a legal expert said. David Denney, general counsel for Dallas-based Twisted Root Burger Co. and an attorney for a number of small chains, said he’s already seeing franchisors write legal workarounds into their franchise agreements, protecting the home office from litigation.  McDonald’s and other franchisors contend that being held accountable for the employment policies and practices of franchisees would expose them to lawsuits and regulatory actions started by employees who contend they were wronged.

2. Build-your-own is the sweet spot

The conversation has shifted from “cooked to order” to “assembled to order.” Diners enjoy both the control and the theatre of build-your-own. While this service style only accounts for 22.5 percent of the fast-casual market, finds Technomic, it’s growing at a rate of 22.3 percent, more than double the 10.7 percent growth rate of non-build-your-own spots.

3. But that’s shifted consumer expectations

The Chipotle model has changed the game. When diners go to a fast casual, they expect to move down a line and have control, guiding staffers on exactly how much of each ingredient they want in their meal. This is a concern for Chicago-based Potbelly Sandwich Shop, said Chris Desurun, the chain’s consumer insights coordinator. High wood counters behind which sandwiches and salads are prepped are a large part of the chain’s aesthetic. But soon, as more diners expect to watch their food being prepared, will those view-blocking counters have to be replaced by something transparent?

4. You can’t change your DNA

As the segment continues to gain market share, both QSRs and casual-dining chains have tried to enter the fast-casual space. The problem for some chains, says Technomic’s executive vice president Darren Tristano, is that they are trying to reinvent existing concepts with a different service style. KFC11 failed, for example, and now is seen by the brand as nothing more than a good learning experience. The brand is fast food, down to its core, said Tristano, and trying to add fast-casual elements flopped. For the same reason, Red Lobster’s attempt to move a fast casual in house didn’t work. Those that have had success in diversifying are investing in new brands (for example, Buffalo Wild Wings buying into Rusty Taco) or launching entirely new offshoots, such as Red Robin Burgerworks and Denny’s The Den.

5. Pizza is hot

Technomic estimates that the fast-casual pizza market will grow 23 percent over the next five years. “That might even be low,” says Tristano. The reason: While most fast casuals compete for the lunch daypart, pizza spots do well in the evening, a less competitive scene. But expect to start seeing some fallout, he says. While some chains may emerge as the nationally recognizable Five Guys or Shake Shack of pizza, not all of the brands will grow successfully.

6. Ease of takeout matters

Fast food still beats out fast casuals when it comes to convenience. That’s why operators like Panera have retrofitted an area of the restaurant to elevate the convenience factor. As more chains try to appeal to younger diners looking for ease of use, expect a lot more enhancements, says Tristano. But don’t expect the speed to take away from the hospitality of the fast-casual experience.

7. Think outside the lunchbox

As the number of fast-casual concepts continues to rise, the lunchtime competition—the high-traffic time for most fast casuals—gets steeper. So Matt Mattros, founder of Chicago-based Protein Bar, sought out to fill the periods outside of lunch as a point of differentiation. Its “secret sauce,” he says, is in breakfast and afternoon snacks.

8. Tech is still baffling … but crucial

Technology’s biggest impact is on millennials’ exposure to trends and what’s going on in the industry, says Anthony Pigliacampo, founder and co-CEO at Modmarket. People are constantly looking at pictures, and they are searching for information on food in new ways over the web. That led Modmarket to put a lot of website optimization in place to help consumers get to its brand quicker. Other panelists agreed that mobile now is a must-have in order to have the type of engagement customers have come to expect. But building in the right elements of loyalty is tricky, especially as discounting as a part of loyalty is losing steam.

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