Fast Casual Restaurants Are Changing the Face of the Traditional Fast Food Industry; Growth in the Fast Casual Arena has Slowed as the Fast Food Restaurants Become More Appetizing.

PORT WASHINGTON, N.Y. -- The fast food industry has opened its doors to the Fast Casual concept. After watching the Fast Casual segment continue to grow, traditional fast food restaurants are taking notice and making changes.

"With greater economies of scale and a wide-ranging network, the fast food industry has begun defending its own business by pushing out more premium products, like salads and premium sandwiches, that directly compete with the fast casual offerings," said Michele Schmal, vice president of product management for NPD Foodworld.

Fast Casual restaurants exploded onto the scene more than three years ago. Although they account for only two percent of all restaurant visits, Fast Casual restaurants initially experienced double-digit growth in units and sales. According to The NPD Group's latest Fast Casual Report, Fast Casual restaurants continue to see increases in units, traffic and dollars. Unit expansion increased 13 percent for 2003 while the total number of restaurants nationally held steady. Higher customer traffic numbers at Fast Casual eateries were spurred by unit expansion. For the year ending September 2004 vs. the same time a year earlier, traffic was up seven percent. However, traffic for the combined group of chains was a bit soft on a per store basis. Consumer spending was up ten percent for the same time period. Even though the growth rate has slowed over the last few years, it's still considerably higher than the total restaurant industry.

"Consumers welcomed the Fast Casual concept with open arms because it provided an alternative to traditional fast food and offered more choices. Still the Fast Casual restaurants never became really big," said Schmal. "They woke up the industry to what consumers want when they eat out," said Schmal.

As a group, Fast Casual restaurants are perceived by consumers to offer a slightly higher quality of food, service and atmosphere. They continue to score higher on customer satisfaction attributes. Fast Casual restaurants are dominated by the Bakery Sandwich category, Mexican chains and Burger chains. While they offer foods that are perceived healthier, consumers are also eating the traditional fast foods at Fast Casual restaurants.

"A shake out is starting to occur- there will be some winners and some losers. While there is no evidence that shows double-digit growth is coming back, we see Fast Casual as a growth area over the next few years," said Schmal. "Consumers proved that they were willing to pay a little more to get something new/different," said Schmal.