How Fast Casual Tops Franchise Growth with Better Bottom Lines

Nobody should be surprised that fast casual leads all other industry segments in overall sales growth and unit growth. Observers could plainly see that in Technomic’s Top 500 Chain Restaurant Report, or with their own eyes, as the newest restaurants in town are probably fast-casual concepts and are probably packed with a line to the door at lunchtime.

But fast casual’s particular strengths are not limited to its ability to drive the top line. In a forthcoming new industry study, the Top 100 Franchise Chain Restaurant Benchmarking Report, Technomic found that the fast-casual segment also leads all others in important measures of profitability and return on investment. Of the 100 largest brands that franchise (meaning the study did not include major chains like Chipotle Mexican Grill and Starbucks, for example), the fast-casual chains collectively produced a sales-to-investment ratio of 1.7, higher than 1.4 for all 100 brands and significantly higher than those for quick service, casual dining and midscale.

The segment also bested all others with average revenue per square foot of $505, more than casual dining’s $488 per square foot, quick service’s $460 per square foot and midscale’s $382 per square foot. The brands with the greatest revenue per square foot numbers also produced franchise unit growth numbers well in excess of 10%, including Raising Cane’s Chicken Fingers, Dickey’s Barbecue Pit and Jimmy John’s Gourmet Sandwiches.

So while fast casual’s appeal to consumers has been obvious for some time—menu items with perceived higher quality than that for fast food, customization, and prices fitting a sweet spot between QSR and casual dining—perhaps now its draw for franchise operators can be as well. On average, these brands are able to collectively derive an average unit volume nearly 20% higher than quick service’s AUV, in locations that, while a little bigger on average, cost franchisees about 20% less to build than the average quick-service restaurant.

Don’t be surprised to see fast-casual chains attempt to reduce their footprints and boost throughput even further, with goals not only to generate even more sales per square foot but also to open nontraditional locations in very small venues with high foot traffic. Native Foods Café, for example, debuted an “express” location in Chicago this summer that the brand believes could work in a space about one-third of its normal 3,000-square-foot box. Throughput is also a focus for growth-minded Noodles & Company, as well as for McAlister’s, which had an above-average sales-investment ratio in the Top 100 Franchise Chain Restaurant Benchmarking Report compared with all of fast casual.

Panera Bread also continues to do interesting things to improve throughput, including opening “catering hub” stores that serve large-order deliveries and catering orders only, leaving its regular bakery-cafes able to more efficiently serve ordinary dine-in customers. Of course, much of its “Panera 2.0” investments include digital ordering that would enable Panera to leverage Rapid Pick Up, its grab-and-go upgrade in its stores.

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Darren Tristano

Darren Tristano is President of Technomic Inc. Since 1993, he has led the development of Technomic’s Information Services division and directed multiple aspects of the firm’s operations.

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Comments

  1. Did the 2015 Technomic Top 100 Franchisor Chain Benchmarking Report come out yet? It has been impossible to find so far – please advise!!

    Thank you!

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