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February 11, 2014
At first glance, there’s little good news for full-service operators in NPD Group’s recent summation of restaurant industry growth in 2013. Only the fast-casual segment shows positive numbers—traffic was up 8 percent last year. Meanwhile, the family, midscale-casual and fine-dining segments are limping along with 2-percent growth. Adjusted for inflation, they’re going nowhere fast.
How come? The fast-casual revolution means that full service has to compete on two fronts: price and better food. It’s a tall order, but at least numbers from Technomic tell restaurant operators in other segments what customers are willing to pay. As reported in a Foodable TV blog posting, there is a clear “sweet spot” for fast-casual pricing.
“A recent survey for Technomic’s Value & Pricing Consumer Trend Report asked consumers to define the price at which a product is too cheap so as to impact quality (low price); the price at which the item is a bargain (optimal price); the price at which a product is starting to become expensive, but they would still purchase it (indifference price); and the price at which a product is so expensive they would no longer purchase it (high price),” Foodable’s analysts report.
The survey’s results? The “optimal” meal prices in the fast-casual segment are:
• Breakfast: $6.01-$6.50
• Lunch: $7.00-$7.60
• Dinner: $8.54-$9.09
Fine dining can’t touch these price points. But operators in other full-service segments sure can. That’s why the latest round of deals from casual-dining chains flirt with these pricing levels.
At Outback, the Steak Plates offer gives patrons the choice of three six-ounce top sirloin entrees for $9.99. The Bloomin’ Sirloin, for example, is topped with Bloomin’ Onion petals and served with Aussie fries. Salads, drinks and desserts are extra.
At Red Lobster, the RL lunch offers seven entrees at $7.99 on weekdays. Among the options: wood-grilled tacos made with either tilapia or shrimp and served with Cheddar Bay biscuits. Chili’s $20 dinner for two deal includes one appetizer and two full-size entrees. Everything else is extra.
Note that the pricing of these deals falls within, or very near to, the parameters customers say they desire at fast casual.
These national chains are facing the fast-casual challenge head on. Expect to see even more operators start pricing their deals and promotions this way. It’s what customers want.
They want relatively fast service, too. That’s a challenge for full-service operators, but all may not be lost. If your restaurant has experience with takeout orders, you may be able to compete on this front. That’s because fast-casual operators such as Chipotle and Panera sometimes have more business than they can handle. At some units, the lines for lunch can be formidable.
As Yahoo finance writer Michael Santoli reports, that’s one reason casual-dining chains that are experienced in handling takeout orders in volume think they can get into the game.
“At a big industry conference this month sponsored by research firm ICR in Orlando, Fla., a Brinker executive jibed that the dedicated takeout drive-up service at Chili’s rivals the speed of fast-casual for a workday lunch,” he writes. “Panera and Chipotle have both vowed to add staff to speed service, with Panera in particular noting it used to brag about huge queues but can no longer afford to take the issue lightly.”
Not that adding a fast-casual component to an existing full-service restaurant isn’t a slam dunk. Red Lobster gave it a try at two units, but later pulled the plug. Applebee’s Express Lunch service is having better results. Other chains have taken the plunge, too. Some opt for standalone units, while others incorporate their fast casual offerings into their existing restaurants.
The upshot: if your restaurant wants to compete in the fast casual arena, there may be a way it can. And as the NPD numbers suggest, if you want to keep your restaurant growing, it may have to.
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