Why Buy Into Fast Casual?

Why Buy Into Fast Casual?

Fast Casuals & QSR can be your tickets to global success. Cherryh Cansler identifies current trends in this exploding sector

Major restaurant chains, including McDonald’s, KFC Subway and Pizza Hut, have been enjoying global dominance for decades, but expanding beyond home borders is no longer a strategy reserved for billion-dollar brands. Gone are the days of chains waiting until they’ve saturated their original markets before venturing outside their home turfs. In fact, international expansion is coming pretty quickly for a variety of fast casual brands, including California-based Slapfish.

Founded as a food truck by Chef Andrew Gruel in 2011, the concept has grown to 13 brick-and-mortar locations throughout California, New Mexico and Utah. And instead of simply focusing on North American expansion, the chain has already signed deals to open in South Korea and in the U.K. “(It’s) diversifying a portfolio, the same reason I invest in international stocks,” said Gruel, who stressed that global success depends on the partner a brand chooses. “We targeted someone, who already knows the market, and who has the financial and emotional capital to intro a new concept into that market.”

Which Wich, a fast casual sandwich brand founded in 2003, in Dallas, also looked internationally but waited until it had about 250 units open in the U.S. and 10 years of operating experience before venturing into Panama, Mexico, Qatar and the United Arab Emirates. “When I first launched Which Wich, my first focus was on creating and developing an innovative sandwich concept that would move the segment forward and appeal to the next generation of sandwich lovers,” said CEO and Founder Jeff Sinelli.

He spent the first decade focusing on growing the franchise “intelligently throughout the U.S. and making sure that it was ready to head across borders and overseas. “Our success and buzz obviously led to curiosity and inquiries from international groups during that first decade. However, it was important to me that we approach any international expansion the right way.” The “right way,” Sinelli said, was doing his research and putting in place a team that understood the complexities of each international market.

“The customs, culture and tastes in every corner of the globe are different and you can run into some problems if you don’t account for that in your overall international growth plan,” he said. “We spent countless hours learning about the markets where we grew, speaking with the potential partners in those areas and having a true, open and honest conversation with them about the viability of the brand.” Which Wich, now operating 500 units in nine countries, entered the European market this year, opening in February in London, a city that Sinelli called “ripe for a sandwich concept like Which Wich.”

Protecting your brand

Sinelli said it’s important for any concept to protect its mission and branding. “Any emerging franchise concept is going to attract attention from groups overseas in the early years, but it’s vitally important that the partners you grow your brand with outside of the U.S. are bought in to the overall direction of the brand,” he said.  “We were selective in how we partnered and who we partnered with in our initial foray overseas. You’re entering a relationship in which you’ll be separated by potentially thousands of miles and across oceans. There needs to be understanding and trust to create the foundation for international success.”

Kathleen Wood, a U.S.-based branding consultant, who has helped restaurant concepts open global locations, agreed, advising restaurateurs to always do their research. “Identify a great/credible/proven partner, know how your brand will translate and compete, understand consumer behaviors, and be flexible so you can adjust to meet the needs of the marketplace,” said Wood, who also owns and operates Suzy’s Swirl, a frozen yogurt brand in Chicago.

Like Sinelli, she urged brands to protect trademarks, intellectual property and any patents and to never under-estimate business cultural differences. A common mistake is truly not “understanding the unwritten rules how people (leaders, managers and employees)  work in different countries.”

Understanding global trends

While brands hoping to make it on the international scene should understand the culture of each specific country they are trying to serve, there are a few industry trends that are appealing to customers across the world. They include:

1. Transparency in sourcing.
2. Street food.
3. Delivery.
4. A focus on plant-centered meals.

Transparency in sourcing

“Consumers demand to know both what’s in their food and what’s not in it. Many are looking for items free of everything from gluten and added sugars to GMOs and artificial colors,” Aaron Jourden, Technomic senior research manager, said in “Technomic’s Take: 2018 Global Megatrends.”

The poll found that about 75 per cent of consumers strongly agreed that restaurants should be more forthcoming about where they get ingredients, with this demand most urgent in India and Mexico. About 90 per cent of consumers worldwide say they’d be more likely to purchase restaurant fare described as fresh, and nearly 75 per cent preferred natural, authentic, premium and locally sourced. Around 60 per cent of consumers wanted to see organic, GMO-free, functional and sustainable items.

“By region, Latin Americans are most insistent on freshness, Asians on authenticity and Europeans have the strongest preference for locally sourced foods, with six in 10 saying restaurants should always purchase local ingredients,” wrote Jourden, who also pointed out that consumers want to know the “story” behind their meals.

In Kuwait, for example, Naif Chicken offers vegetarian-fed halal chicken sourced from its own Kuwaiti hatchery and farms, and ASK Italian in the U.K. touts its relationship with a family-based olive oil supplier in Puglia, Italy. Hunter Gatherer in Shanghai, which has a seed-to-table philosophy, tells customers how it only uses natural, sustainable and chemical-free ingredients sourced from three self-operated farms.

2. Street foods

Street vendors have been around for centuries, but customers are flocking to food trucks, food halls, kiosks and pop-up concepts now more than ever. In fact, Euromonitor named street stalls/kiosks as the top-performing foodservice category in 2017.

“Chains make up just 11 per cent of total value sales in the street stalls/kiosks category, but chained concepts, specifically, grew 17 per cent by value in 2017, which was faster than any other single foodservice segment globally,” said Euromonitor Analyst Stephen Dutton, who defines street stalls and kiosks as a category capturing everything from the street stalls of traditional food markets and hawker centers, to modern food halls and even food trucks.

Clear standouts in the category this year were Asia Pacific-based bubble tea chains led by Taiwan-based Yiddtea (Shenggen Enterprise Co Ltd) and China’s HEYTEA (Shenzhen Meixixi Food & Beverage Management Co Ltd). “Yiddtea in particular grew from just over 300 outlets in 2012 to over 3,500 in 2017, to become the world’s largest chain of street stalls/kiosks, capturing nearly 10 per cent of all chained sales globally,” Dutton said. “Chained tea concepts in Asia Pacific have had a direct impact on the category’s positive performance overall, but consumers in general are increasingly drawn to the relative informality and on-the-go nature of these dining occasions.”

The street food trend has even inspired fine dining chefs to take a piece of the action. Chef John Tesar, for example, is opening a fast casual brand — Knife Burger — this summer inside Crockett Street Food Hall in Fort Worth, Texas. The food hall features 14 local eateries operating from mini spaces ranging from 100 to 1,000 square feet and serve offerings like barbecue, burgers, Mexican, sandwiches, coffee, pastries and doughnuts.

Farmstand, based in London, serves its American-inspired street food in more than 20 locations ranging from pop-ups to corporate canteens, while the UAE’s Last Exit food truck park brings together purveyors of street foods from around the world. Even major brands are getting on the bandwagon. KFC in South Korea, for example, ran a street food promotion offering traditional Korean snacks, such as tteokbokki, in familiar KFC flavors.

3. Delivery required

Global delivery sales grew 17 per cent in 2017, according to Dutton, and they will continue to increase as services get better and become more widespread. “Delivery sales grew faster than any other dining occasion, drastically outpacing sales in eat-in, takeaway and drive-through occasions,” Dutton said. “Apart from the Netherlands where delivery grew a remarkable 43 per cent, delivery grew fastest in the largest emerging markets of Russia, China, South Africa, India and Brazil respectively. At USD $43 billion, the largest market by total value sales remains China.”

4. Plants on the rise

Plants are finally seeing their place in the sun as more consumers embrace a vegetarian or vegan lifestyle. In fact, a report from Baum + Whiteman called “plant-based” the food trend of 2018, and Nestle named plant-based foods as one of its top six trends of the year, saying that 87 per cent of Americans consume plant protein, for example, and nearly two-thirds do so at least once a week.

Similarly, Technomic found that 34 per cent of consumers globally — including 44 per cent of Asians— said they purchased vegetarian fare in restaurants, and 28 per cent worldwide look for vegan items. An even broader group has adopted the flexitarian idea, replacing meat occasionally for the sake of their health and the global environment.

Even brands specifically known for their beefy burgers, including  Fatburger —  owned by FAT Brands — as well as Wahlburgers  and White Castle, aren’t ignoring the veggie trend. Each has added the Impossible Burger, a plant-based burger that mimics the flavor of beef, created by Impossible Foods, to its menus. Several Hong Kong-based restaurants, including Little Bao, Happy Paradise, and Beef & Liberty, are also testing the burger, which requires far fewer resources to produce than animal proteins. Even McDonald’s is testing meat-free options, launching the McVegan burger in Sweden and Finland.

“I knew from the moment we debuted the Impossible Burger patty in Los Angeles that this was going to do well with our customers — it quickly became one of our best-selling items,” said FAT Brands CEO Andy Wiederhorn, who is keynoting the 2018 Restaurant Franchising and Innovation Summit, July 16-18 in London. “There’s no doubt our customers will always love 100 per cent beef Fatburgers, but we’re hoping to engage both old and new fans alike with a top-notch meat-free option.”

Choosing a location

When it comes to honing on the countries ripest for expansion, Warren Solocheck, president of Foodservice Practice at The NPD Group, said they share the following characteristics.

* Growing incomes/middle class.
* Large and growing population of 20-30 year old which is the age group most likely to use a restaurant.
* Urbanization.

“The areas of the world that best fit these criteria are China, the Middle East and Brazil,” he said.

The Middle East is the most obvious place to go, said Kathleen Wood, and as a result there is more competition in the marketplace. Her other top pics were Canada, Japan and Europe. “Canada (from NPD numbers) does $ 20 plus billion a year in  fast food, and the leaderboard has not really changed there in many years — McDonalds, BK, Tim Horton, Subway and AW. The consumer is looking for healthier, faster, cost-effective menus and more grab ‘n’ go. If I have a concept that can deliver on that level, my potential to grow becomes more efficient and effective.”

Japan is similar to Canada in that the leader board has not changed except that 7-11 is considered a high- quality place for grab ‘n’ go , and Subway is revered as a fresh vegetable place. “The Japanese love the US and embrace brands that speak to their culture,” she said, noting that she saw a mini-Eatly at one of the train stations when she was there helping a US-based healthful brand enter the market.

Europe — Post Eastern Block, Poland and Czech-Germany —  are also targets for growth. Pizza Hut and Five Guys,for example, are already there. “Again I think one of the driver is that in all of these areas the dominant players have been at the top of the leaderboard for a long time,” Wood said. “However consumer sentiment and wants are changing globally not just in the United States. The brands that are attuned to those consumer/market needs will have a great opportunity to differentiate and grow.”


ABOUT THE AUTHOR

As director of editorial, Cherryh Cansler oversees the 10 online B2B magazines published by Networld Media Group. She’s also the managing editor of FastCasual and designs the content, books speakers and MCs the Restaurant Franchising and Innovation Summits in Louisville, Kentucky; and London as well as the annual Fast Casual Executive Summit.

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