- NEW YORK (Reuters) - Say
goodbye to the 99-cent burger and hello to the $8 sandwich.
-
- Increasing disenchantment among Americans with
traditional
fast-food venues has spurred the growth of restaurants offering higher
quality food in a similarly convenient setting.
-
- "There seems to be a growing dissatisfaction with
the quality aspect of the McDonald's and Burger Kings of the world. People
are more focused on quality," said Fitzhugh Taylor, a restaurant
analyst
at Banc of America Securities.
-
- The industry likes to call the emerging category of
restaurants
that offer healthier fare than their fast-food counterparts "fast
casual" or "quick casual." They're supposed to combine the
fast service of a McDonald's with the more sophisticated style of casual
sit-down restaurants.
-
- The fast casual category is among the hottest in the
restaurant industry, accounting for about 3.5 percent of sales. According
to Mitchell Speiser, an analyst at Lehman Brothers, market share is
expected
to double within four or five years.
-
- A number of quick casual chains already exist, including
Noodles and Company, Baja Fresh, Corner Bakery, Cafe Express and Pei Wei
Asian Diner, a spin-off of Asian-themed restaurant P.F. Chang's China
Bistro
Inc.'s.
-
- Some have already shown strong growth. Panera Bread Co.,
a market leader, is trading at more than $55, up from less than $8 in May
1999, when the chain sold its Au Bon Pain properties. Panera said on
Thursday
its fourth-quarter net income more than doubled, reaching $4.8 million,
or 32 cents per share, from $2.4 million, or 17 cents per share, in the
year earlier period.
-
- Another popular chain, Cosi Inc., is preparing for an
initial public offering later this year in hopes of riding fast casual's
rising acceptance.
-
- Several recent trends, including surges in sales for
organic foods, personal supplements and premium beverages, point toward
a growing class of health- and quality-conscious American consumers.
-
- Many analysts also attribute the demand for higher
quality
to an aging population, including baby boomers who have recently hit their
peak earnings years.
-
- "Fast food is not appealing to the baby boomer who
is fighting aging like the plague, who is a little more discriminating
in the quality of food they eat," Adams, Harkness & Hill analyst
Scott Van Winkle said. "A consumer's expectation for food improves,
I think, with age."
-
- FAST FOOD TAKES NOTICE
-
- The fast growth of fast casual holds promise, but also
a threat, to the established chains. Traditional fast-food giants searching
for new growth opportunities, including McDonald's Corp., Wendy's
International
Inc. and I.C.H. Corp.'s Arby's, are experimenting with new offerings that
could boost their sluggish growth. But if they don't move fast enough,
the upstarts will eat up bigger share of the fast food market.
-
- "The fact that fast casual is in its infancy and
people are starting to take notice leads you to believe there's quite a
bit of growth in that segment. There's not a tremendous amount of growth
in traditional quick service. It's more of a market share game,"
Taylor
said.
-
- Speiser estimates that the fast casual sector is growing
in a range of 15 percent to 20 percent per year, while fast-food growth
is only about 2 percent per year.
-
- Fast-food chains have looked to capitalize on the growth
by acquiring fast casual properties and developing healthier product lines.
McDonald's has purchased prepared sandwich line Pret A Mange and upscale
burrito restaurant Chipotle. Wendy's is offering salads with exotic
toppings
like mandarin oranges, and Arby's has started a fancier line of
sandwiches.
-
- Successful fast casual chains can generate higher returns
on investment than traditional fast food. The perception of higher quality
allows them to charge more, resulting in higher sales on a similar
investment.
-
- KITCHEN SUBSTITUTE
-
- Analysts said longer work hours and an increasing number
of two-income households have made Americans more time-conscious, which
has contributed to the rise of the sector.
-
- "People are willing to pay a couple dollars more
for a better dining experience, yet don't want to sacrifice the convenience
of quick service," Speiser said.
-
- "Fast casual combines all the elements of what the
on-the-go consumer, which seems to be almost everyone these days, is
looking
for," he said.
-
- Paul Westra, an analyst at Robertson Stephens, said that
fast casual restaurants are becoming "kitchen substitutes,"
suggesting
that for many consumers eating out has become more efficient than
cooking.
-
- Westra said a $10 basket of groceries a decade ago would
cost a consumer $19 on average if prepared in a restaurant. Now, he said,
the same basket of supermarket food would only cost $12.50 at a
restaurant.
-
- "The relative cost of outsourcing a meal actually
makes sense," he said.
-
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