The Ever-Expanding Restaurant Market
What’s the Difference Between QSR, Fast Casual, and Casual Dining?
Consumers today have a wide array of options for what kind of service they would like to receive. Three popular restaurant services include quick service restaurants (QSR), casual dining, and fast casual.
Casual dining felt adverse effects from the 2020 pandemic. According to Top Data, when the coronavirus epidemic began, informal dining restaurants saw 58 percent less traffic on average, whereas fast food places saw only a 30 percent decline. According to Allied Market Research, the fast-casual market was worth $125.6 billion in 2019 and is predicted to grow to $209.1 billion by 2027, with a 10.6 percent CAGR from 2021 to 2027. The emergence of more drive-thru and deliver-to-door services is also expected to grow in the near future.
Investors must take into consideration that consumer preferences have changed, and needs have shifted. We are seeing an overall increase in people wanting more healthy, convenient, and trustworthy food. With this in mind, restaurant owners must adapt to their consumers’ new lifestyles.
Quick Service Restaurant
The QSR market serves fast-food cuisine and offers minimal to no table service. The most well-known QSRs include Burger King, KFC, McDonald’s, Subway, Wendy’s, and Taco Bell. This type of restaurant has one main goal: to serve customers their food as quickly and efficiently as possible. The food here is cooked to order in a short period, and a typical meal costs less than $10. The menus are limited, and the food is usually available for takeout via drive-thru. The ambiance is primarily functional, with plenty of plastic seating and tabletops, fluorescent lighting, and branded graphics from the chain.
The fast-food market segment is growing faster than ever before. However, with this demand increase, heavy competition, and rising interest rates, owners need to take all the necessary steps to make a return on their investment. A successful QSR has competitive prices, fast service, and convenient locations. Quality and consistency are essential when investing in a QSR tenant.
COVID-19-inspired technology and ingenuity have transformed the largest quick service category into something hardly recognizable. According to the survey component of the 2022 QSR® Drive-Thru Report, consumers are now more satisfied with their drive-thru experience than they were at the peak of the pandemic. Upgrades such as improved signage, sanitation, and technology an be attributed to the continuous success of QSRs.
Restaurants like Wendy’s are now changing the traditional drive-thru process and have shifted to separate windows and pickup points for delivery drivers. Other QSRs are utilizing mobile apps or websites that make ordering from the restaurant a quick and effective solution. The COVID-19 pandemic essentially placed a drive-thru screen in the hands of practically every American consumer. It’s a fact that raises the stakes and expands the possibilities.
Top 10 Fastest-Growing Quick Service Chains in the Country
- Starbucks
- Domino’s
- Jersey Mike’s
- Wingstop
- Chipotle
- Popeyes
- Chick-fil-A
- Tropical Smoothie Café
- Panda Express
- Raising Canes
Casual Dining
A casual dining restaurant is a full-service concept with a relaxed, comfortable, family-friendly atmosphere and an affordable menu. The consumer’s order is typically taken at the table by a server. Chili’s Grill & Bar, Buffalo Wild Wings, Applebee’s, and TGI Fridays are prominent examples of casual dining restaurants. These restaurants offer menus with a much more comprehensive range of choices than QSRs. These menus have more beef, fish, and poultry options and a large selection of salads. Furthermore, most casual dining establishments serve alcohol.
The atmosphere varies depending on the establishment, but the interior design, tables, and seating are much more appealing than QSRs. Most casual-dining institutions feature a lot of wood, custom lighting, oversized booths, and tables and chairs made of similar upscale materials. When consumers walk into these places, it feels like an authentic restaurant, unlike the cafeteria-style layout at QSRs.
To entice customers, casual dining establishments are changing their value offerings. Despite having solid positions in numerous markets, the critical variable of uncertainty was the impact of COVID-19 on consumer behavior. Consumer expectations for informal dining have shifted; cuisine should be novel, healthful, and prepared quickly. Finally, many well-known casual dining brands have invested in a new rebranding plan. Everyday dining investors have identified safe harbor concepts, often located in profitable areas, attractive locations, and tenants attempting to revitalize their brand.
Despite the frequency of promoted discounts, many consumers consider casual dining entrée costs higher than other restaurant selections. Also, with the quickly growing consumer price index for food away from home at 7.7 percent, some customers have reduced their frequency of dining out. Sales and industry growth at casual dining restaurants are at a five-year low. Every day, the restaurant industry becomes more crowded and competitive. Rents in urban restaurants are rising due to gentrification pressures and compensation for delayed rent increases. According to established restaurants, traditional advertising methods are no longer effective in the digital age.
Casual dining restaurants do not have large profit margins, and have a profit margin averaging around six percent. Restaurant profit margins are directly affected by three key factors: cost of goods sold (COGS), labor, and expenses, generally known as “The Big 3.” A business’s profit margins will suffer if these costs rise faster than average restaurant income. Sit-down restaurants have seen a considerable increase in all three categories over the last decade, particularly in food expenses and minimum wages. Profit margins fell because most restaurants could not increase sales quickly enough to cover these expenses. Customers are squeezed by increased prices, leaving casual dining operators to resort to three options: reduce portion sizes, uses more affordable ingredients, or increase meal prices.
Fast Causal
Fast casual restaurants provide a broader range of service types, more customizable menu items, and an environment that encourages guests to sit and enjoy their meals. Fast casual combines the convenience of fast food with elements of casual dining restaurants, such as an inviting atmosphere, alcohol menus, and, in some cases, food runners. These restaurants come in various service formats, including traditional, limited, and custom counter-service. Standard counter service allows consumers to order off a preset menu from the counter and pick up the food when it is ready. Limited service is when the employees bring the food to the consumer’s table after they order at the front. Custom service is the typical “assembly line” restaurant that prepares the consumer’s order in front of them and hands it to them after they pay the cashier at the end of the line.
Over recent years, one consistent trend in the restaurant industry is that many restaurants are moving towards a fast casual model. This trend is essential to predicting the restaurant industry’s future, especially in an investor’s eyes. As a result of the COVID-19 pandemic, restaurant owners now want to operate smarter and contribute to their overall guest experience in the best way. For many people, that means adopting the methods of fast casual restaurants.
Now is the time to invest in a fast casual franchise. During the recent economic downturn, franchise restaurants fared better than independent ones, proving strength in numbers and methods. Compared to independent enterprises, fast casual concepts with solid business plans were better able to position themselves for success. The trend is still present today, with quick-service franchise sales increasing this year and expected to do so through 2023.
Fast casual establishments include Chipotle, Jimmy Johns, Panera Bread, Pokeworks, and Five Guys. These places each serve a more upscale and diverse menu, while also incorporating drive-thrus, making them stand out above QSRs. These restaurants use more expensive and sustainable ingredients, as well as innovative cooking techniques. The fast-casual restaurant model is growing in popularity in the food business. This niche is booming because there is better flexibility and execution. The approach is defined by greater ingredient utilization while serving food nearly as quickly as standard fast-food companies.
Promising Growth Initiatives
According to Costar, National restaurant chains are looking to build more eateries in the upcoming year by combining an increase in customers and additional sales. The ever-increasing demand for delivery and takeout has been the main driver of growth in the number of quick-service dining locations ever since the pandemic’s peak. Several companies plan to add more drive-thru pickup windows for order-ahead customers and smaller formatted branded restaurants.
