Fast-Casual vs. Fast-Food: An Overview
The two pillars of the American restaurant industry have always been fast food and fine dining, but now the fast-growing fast food industry has gotten caught between them.
Many companies combined high-quality ingredients with the convenience of fast food to start the trend, including restaurant brands Chipotle (GCM), Shake Shack (SHAKE) and Panera, among others.
In numbers, they are still dwarfed by fast food competition and will be for years to come. But fast-casual chains are growing much faster than their fast-food competitors.
Key points to remember
- Fast-casual restaurant chains offer better quality food in an informal setting.
- Leaders in this sector are overtaking traditional fast food restaurants in terms of growth.
- The fast food industry is responding with a wider variety of menu options.
Fast-Casual
Fast-casual restaurants offer consumers freshly prepared, higher-quality food in an informal setting, with counter service to speed things up.
Notably, Shake Shack, a burger chain originating in New York City, has found success in offering a casual dining experience at a fast food pace. Shake Shack’s share price rose from $21 to $47 in 2015 initial public offering (IPO). As of August 5, 2022, it closed at $51.56.
40,000 versus 395
The number of McDonald’s restaurants worldwide compared to the number of Shake Shacks as of August 5, 2022.
It will be a long time before a fast food chain rivals McDonald’s for size or revenue numbers. “Mickey D’s”, as its fans call it, is a global powerhouse with more than 40,000 restaurants worldwide in 2022. Its sales exceeded $5.7 billion in the second quarter of 2022. Shake Shack, by comparison, had 395 stores in August 2022. Its second-quarter 2022 revenue was around $231 million.
However, note that Shake Shack’s revenue for this quarter was up 23.1% year-over-year, and equity investors love growth above all else.
Combining the ambience and quality of dining comparable to casual dining with the convenience of a fast-food chain, the fast-casual industry has been a current and future model of success. A number of factors, including affordability in conjunction with quality, taste, convenience and Customer serviceform the basis of the economic model of fast-casual points of sale.
But affordability is relative. A fast-food meal can cost between $5 and $7, although some now offer higher-end selections at a slightly higher price, and most offer “economy” options that cost less. Chipotle prices, by comparison, average around $11 per person.
The fast-casual concept incorporates relatively affordable pricing with high-quality ingredients. Their menus feature more natural ingredients, more fresh vegetables and fruits, and personalized selections.
As consumers’ lifestyles and consumption habits change, ingredients labeled organic, fresh and non-GMO are associated with higher prices.
fast food
The fast food industry has a number of popular franchises, including McDonald’s, KFC and Taco Bell (YUM) and Wendy’s (MAGNIFYING GLASS). McDonald’s led the fast food industry in terms of overall sales and number of restaurants worldwide, followed by Starbucks (SEX) and Chick-fil-a.
McDonald’s sales increased nearly 10% in their second quarter ended June 30, 2022.
Fast food chains have earned much of their success by offering quick, inexpensive meals that are always prepared exactly the same way. However, in recent years, fast-casual restaurants have continued to eat in the market share major fast food chains.
As American consumption moves towards organic choices, fast-food chains could see some of their market share eaten away over time. Traditionally, fast food chains have gained market share by offering simpler and cheaper alternatives. Fast-food chains have stepped in to provide consumers with healthy, albeit more expensive, selections.
The fast food industry is not ignoring the trend. In late 2018, McDonald’s announced that it was removing all preservatives, fake colors and other artificial ingredients from seven of its burger selections. Its menu now features grilled chicken salad, and you can get apple slices with a Kid’s Happy Meal. Taco Bell customers can also choose healthier vegetarian options.
