Fifteen years ago, the restaurant world could not get enough of higher-end burgers.
Investors poured money into fast-casual burger chains. Franchisees signed up as quickly as they could to open Smashburger restaurants or Five Guys locations. By late 2014 and early 2015, two of these companies, Habit Burger and Shake Shack, went public, with both IPOs outdoing the famous 2006 initial public offering of Chipotle Mexican Grill.
They appeared to hit a wall, at least last year. Total sales by fast-casual burger chains grew 2.76% last year, lower than the 3% sales growth for the entire Technomic Top 1,500.
And yet that probably doesn’t quite tell the full story.
By comparison, total fast-casual sales grew 8.4%. Restaurant chains that get the fast-casual label generally performed far better. Fast-casual Mexican sales grew 11%. Fast-casual “other” sales grew 8.5%. Fast-casual chicken sales grew 24%, a number so ridiculous we keep rechecking it.
Most of the growth in the fast-casual burger sector came from smaller emerging and regional chains. Among fast-casual burger chains that generated more than $50 million in system sales last year, median sales growth was just 0.58%.
To be sure, plenty of chains did perfectly fine, and based on the growth of some emerging chains there appears to be at least some appetite for the product. Yet for every Shake Shack (sales growth 15%) there was a BurgerFi, which filed for bankruptcy, closed a bunch of stores and watched sales fall 30%.
Several of the biggest fast-casual chains lost ground last year, including Five Guys (sales down 0.7%), Farmer Boys (down 5.9%) and Smashburger (down 4.6%).
Here’s a look as to why.
Too many burger chains
Burgers are the most popular center-of-plate entrée in the restaurant industry. The fast-casual burger sector itself is relatively small, with $7.2 billion in total sales last year, or less than half the sales of fast-casual chicken or fast-casual Mexican.
But the fast-food burger sector generated $105 billion in system sales and includes three of the 10 largest restaurant chains in the U.S., including the biggest. Of course, that sector also didn’t do great—just 1.3% total sales growth—but the simple fact is, consumers have plenty of burger choices.
Three of the fastest-growing fast-food burger chains, Whataburger, Culver’s and In-N-Out, could all easily be labeled fast-casual and nobody would blink. If we add those three chains to the fast-casual list, then total sales increased 8% and I wouldn’t be writing this. (Side note: This is probably as big an argument to do away with the “fast-casual” sector and just call it all fast food.)
Consumers do like themselves a good burger. They just have a lot of choices.
Shifting consumer demands
Diners grew choosy last year. And at least part of that choosiness had to do with the items being served at the restaurants.
Total limited-service burger chain sales grew just 1.4% last year. But that kind of weakness was evident elsewhere. Pizza sales grew just 0.6%. Total sandwich sales actually declined 0.44%.
Mexican and chicken, on the other hand, grew 9% apiece. “Other,” a catch-all category that includes Mediterranean and bowl chains, grew 7%. While many of these sectors are smaller, their performance still represents a shift away from more traditional fast-food menu items toward other, newer items.
So in some respects, consumers just opted for something other than a burger a few more times than usual last year.
Menu prices
Another big issue is prices. While McDonald’s and the fast-food burger sector was hit with a lot of consumer frustration over prices, Five Guys in particular was hit hard by anger on social media over high menu prices.
As the largest fast-casual burger chain, Five Guys has an outsized impact on the sector’s overall performance, much like McDonald’s weakness is helping bring down the entire fast-food sector. If Five Guys had, say, a Culver’s-like 2024 and grew sales 15% rather than being slightly down, the fast-casual burger sector would have grown 8% last year and we would not be writing this piece.
It's also likely that this frustration spread to other chains in the sector. Many brands might have been able to offset this with unit growth.
Regardless, consumers were frustrated by high prices. They have a lot of burger choices. And they were shifting more toward chicken and Mexican and other items. All that hurt the fast-casual burger sector.