The Gravitational Pull of Fast Casual

A publication by: GRAVITATIONAL PULL OF FAST CASUAL

Executive Summary

Long Range Systems (LRS) recently examined the explosion of the Fast Casual restaurant segment and how diners’ changing preferences are impacting all three of the main categories: quick service, fast casual and full service.

This paper takes a closer look at how changing consumer sentiments and expectations gave rise to the star that is fast casual, and how it continues siphoning market share away from quick service and casual dining. It also examines the characteristics of fast casual and the advantages that distinguish it from the traditional quick service and full service segments and delves into the current and predicted future trends for each segment.

Finally, the paper addresses recommended changes that casual dining and restaurants should adopt moving forward to compete and regain lost market share, and ends by exploring ways fast casual must mature in order to sustain its meteoric growth.

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The Gravitational Pull of Fast Casual

Executive Summary ...... 2 The Rise of Fast Casual ...... 4 A new star is born ...... 4 A new millennium brings a meteoric rise ...... 5 A new decade brings altering diners’ preferences ...... 5 The Irresistible Pull of Fast Casual ...... 7 Quality is the key ingredient ...... 7 What we see ...... 8 What we don’t see ...... 8 Quality extends to the whole experience ...... 9 The need for speed ...... 9 Speedier take-out options ...... 10 Speed through technology ...... 11 Meeting customer expectations through rapid delivery ...... 13 Trends: Where’s All This Headed? ...... 13 Fast casual continues siphoning market share from QSR/FSR ...... 13 What’s trending across segments (FCR, QSR and FSR)? ...... 15 Consumers’ restaurant selection criteria are changing ...... 15 Fast Casual Restraurants keep rising to the challenge ...... 17 Technology adoptions ...... 17 Operational Management Systems (OMS) ...... 17 Nutritional choices ...... 18 Full service is expanding into fast casual space ...... 19 Adaptive characteristics ...... 19 Recent examples of adaptation ...... 19 Quick service also gravitating towards fast casual ...... 20 Adaptive characteristics ...... 21 Recent examples of adaptation ...... 21 The Millennial Effect ...... 22 Moving Forward: Evolution of QSR, FCR and FSR must continue ...... 23 How fast food must change ...... 24 How casual dining must adapt ...... 24 All segments – fast casual included – will evolve ...... 25 About Long Range Systems ...... 26 LRS Solutions ...... 27

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The Rise of Fast Casual

Over the past 25 years, the restaurant industry was dominated by two major segments: quick service (fast food) and full service (casual dining). While other categories existed on the fringes – like food trucks on one end and fine dining on the other – fast food and casual dining were the primary players. In the late 1990’s, however, this began to change.

A star is born

Right before the turn of the millennium, a different type of restaurant concept began to appear. This kind of restaurant didn’t fall neatly into either the fast food or casual dining segments. Like a full service restaurant (FSR), it offered higher quality ingredients and menu options. But like a quick service restaurant (QSR), it offered speed of service and lower prices.

Chipotle Mexican Grill and were two of the largest pioneers in the space and would eventually lead the pack in what we now call fast casual. Today, the fast casual restaurant (FCR) segment is worth roughly $50 billion with nearly 600 different brands under its wide umbrella. And it’s still growing.

The American Fast Casual Food Craze (Sales Growth Since 1999) 600%

Fast casual food 400

200

Fast food 0

‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14

Source: The Washington Post

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A new millennium brings a meteoric rise

Fast food restaurants have always focused on speedy service and low price points. Casual dining has focused on service and quality fresh food, served in a comfortable, appealing atmosphere.

In the new century, customer expectations and preferences began to shift. Busy schedules and fast-paced lifestyles didn’t allow time for a leisurely meal, but diners still wanted the quality and selection that casual dining restaurants offered. Fast food, while great for hectic lifestyles and trim budgets, didn’t offer the fresh selection and ambiance that diners prefer.

Fast casual created an alternative: the speed of quick service with the quality of full service.

In 2007, just as fast casual sales began to take off, the United States – as well as most of the world – fell into an economic downturn. Full service restaurants (FSRs) were hit hard as families tightened their belts, and fast food, while relatively cheap, didn’t create the same experience that diners were getting at full service restaurants.

Fast casual began to thrive in the sweet spot.

A new decade brings altering diners’ preferences

Unlike many industries that found themselves reeling after the recession, fast casual was thriving. By 2010, FCR sales had climbed to $23 billion, a 30 percent increase over four years. The year before, pack leader Chipotle posted a growth of 20.7 percent. In contrast, fast food giant McDonald’s saw only a 4.4 percent increase in revenue.

With fast casual, diners found they could enjoy high-quality food in a relaxing atmosphere for a price barely higher than fast food. People familiar with frequenting fast food eateries for sake of economy could now feel good about trading up to something more wholesome than a drive-thru burger and fries, and full service diners could save some hard-earned money while still getting quality food and a comfortable dining experience. Fast casual combined two benefits that has historically been mutually exclusive.

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In addition to the economic advantage, diners enjoyed the ingredients and freshness that went into their food. And because the food was served quickly, diners could maintain their busy schedules and still enjoy their meals as a social occasion.

Today, demand for this feel-good dining experience is rising and the market is far from saturated. As fast casual continues its rise, research firms like Mintel predict the segment will enjoy at least a five percent annual growth for years to come.

Average Check

Fine Dining $73.82

Casual Dining $20.12

Midscale $10.60

Fast Casual $10.11

Quick Service $9.12

Source: LRS/Technomic Average guest spend per segment. The Digital Resource Library; Technomic Inc. *Midscale restaurants include those restaurants that have simplified production systems (requiring lesser skilled employees), specialized menus and moderately priced food. This category of restaurants includes family restaurants, and buffets & pizza (sit-down).

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The Irresistible Pull of Fast Casual

A fast casual restaurant offers freshly prepared, customized dishes in an inviting sit-down environment but with the counter service and quickness of fast food. So what FCR characteristics are still drawing customers away from fast food and full service dining? What is it that continues to appeal to ever-changing consumer expectations?

Quality is the key ingredient

If fast casual has only one advantage over fast food, it’s quality. Diners rate this element as the number one draw of fast casual over the competition, and data from the research group Technomic indicates that 3 in 5 consumers rate quality as the most important attribute when choosing a restaurant. The same report indicates that quality is where FCRs score highest and QSRs score lowest.

It’s an element that diners can see and taste, but it also involves what they can’t see.

What do diners consider "quality"?

Freshness Unique menu items Taste

Transparency in ingredients Atmosphere Naturally produced (non-GMO)

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What we see

According to findings from Technomic’s Future of LSR: Fast-Food & Fast casual Restaurants report on the future of limited-service restaurants, 63 percent of diners say the quality of fast casual menu items tops that of fast food eateries. Even compared to other menu-related factors such as variety, freshness, uniqueness and taste – factors where FCRs also rated higher than QSRs – quality comes first.

Keeping in mind that quality is a perceived value – a combination of the aforementioned attributes – what other factors influence a diner’s perception of how the FCR quality exceeds that of quick service?

The obvious characteristics come from how our senses perceive the food. We can see menu variety and uniqueness. We can see and smell freshness. We can see, smell and taste the food. And in some instances, diners can even watch their food be prepared, a “quality” rarely found in quick service.

What we don’t see

The customer experience extends beyond our five senses. What customers feel goes beyond what they can easily see or taste. Our curiosity, values and beliefs also shape our perception of “quality,” particularly with regard to what we eat.

For example, the prevalence of genetically modified food products, both vegetable and animal, has recently become of great concern to many consumers. That’s why, in 2013, Chipotle began labeling its menu items, indicating which ones contain GMO ingredients. In addition to a bump in sales, this move proved so popular with customers that in 2015 the chain eliminated all GMO ingredients from its food and announced itself “GMO free.”

Research highlights other non-visible characteristics that add to our perception of quality. Technomic found that most consumers want transparency about their menu choices. 40 percent of consumers are concerned about where their food is sourced and what additives it contains. This goes beyond a mere ingredient list: customers want to know where the food comes from, where it’s been and whether it’s naturally grown or artificial.

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Finally, customers want to feel like they are contributing to a worthy cause, even if indirectly. In 2014, the National Grocery Association found that 87 percent of consumers said locally grown produce and other foods are very important to them. Chipotle capitalized on this by purchasing over 20 million pounds of local produce last year, up 33 percent from 2013. The restaurant’s “food with integrity” campaign for local, sustainable agriculture continues to pay off.

Ultimately, knowing a meal is natural, free of additives and contributes to a higher cause allows most diners to feel better about their choice of restaurant.

Quality extends to the whole experience

It’s been said that man does not live by bread alone. Besides serving food that rivals even the best of full service fare, most FCRs also provide a comfortable and modern dining area. This element of quality puts them in competition with casual dining and elevates them above the plastic tables and chairs found in most QSRs.

The need for speed

Speed of service is what puts the Average consumer expectations for food “fast” in fast casual and is the delivery times, per segment second major differentiator for the segment. QSR Fast Casual Consumer perception of speed 90 3 4 5 depends on a variety of factors, sec min min min including industry segment and perceived value. For example, fast Casual Dining Fine Dining food diners expect quicker service than those dining at a casual or 12 14 30 ? fine dining restaurant. Fast casuals min min min min lean more toward the approach of QSRs in terms of service time expectations as they offer quick and efficient food delivery.

To maximize efficiency even further, chefs and operators carefully craft menus and optimize their kitchen layouts, reducing the prep and delivery time of orders. Since FCR food quality and variety are more on par with those found in full service restaurants, these elements are essential to operations. But what other measures are FCRs taking to satisfy their customers’ need for speed?

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Speedier take-out options

While QSRs are gravitating towards fast casual, there’s one critical area where QSRs shine: speedy take-out. FCRs already deliver their products quickly, but many want to compete in this area at a higher level. They're doing this by adding faster carry-out options.

• Drive-thru convenience: proved that a drive-thru doesn’t have to let food or brand quality suffer. Fast casuals with more rebost menus, such as Panera Bread and Beck's Prime, have followed suit. The key, according to Panera and Restaurant Business Online, is to not let it disrupt the in-house diners’ experience. • Mobile and online ordering: Most fast casual chains have the option to order online via their website, mobile app or both. Focus on the use of these digital platforms in restaurants is growing rapidly and increasing in both prevalence and importance. • Convenient pick-up/carry out options: A drive-thru is convenient, even if it's less common for FCRs than QSRs. However, adding a separate pick-up area (e.g., Panera and Pei Wei) and delivery-to-your- car parking (e.g., Chili’s) both add a personal touch for carry-out.

Percent Sales for Dine-In vs. Take-Out

Dine-In Take Out 97.1% 2.9% Fine Dining 95.6% 4.4% Casual Dining 95.0% 5.0% Midscale

62.8% 37.2% Fast Casual 40.5% 59.5% Quick Service

Source: 2014 Speed of Service Report, LRS. 10 GRAVITATIONAL PULL OF FAST CASUAL

Speed through technology

In an increasingly connected world, FCR operators are adopting technology solutions to address customer expectations, such as mobile apps and online ordering, self-service kiosks and table location management. These technologies improve the customer experience while driving proficiencies and reducing inefficiency in staff and operations.

To further increase operational efficiency, there is also the option to add back- of-house communication systems like staff paging and radios. These are useful tools that can help keep staff running at higher volumes. With smart devices like new data-enabled pagers, businesses are able to track the number of times a staff person was notified and the length of time it takes for that staff member to respond to requests, giving the operator better insight into how employees are supporting their teams.

Mobile apps are also getting smarter. The newer apps allow users to customize their food order (Chipotle) or create-their-own-beverage (Starbucks). Many apps save these custom creations for future orders. With fully integrated mobile payments, customer wait times are significantly shortened. Users appreciate customization features and the timesaving aspect, and apps are being quickly adopted. Chipotle’s iPhone app was downloaded nearly a million times in its first year (2010).

Digital kiosks are another technology solution on the rise. Many FCRs (Panera) are adding the kiosks as an alternative to ordering at the counter. Similar to mobile and online ordering, they allow fully customized orders, eliminate waiting in line and reduce order errors, thereby speeding up both preparation and delivery. Panera reports customers love its “Panera 2.0” kiosks and have improved sales to prove it. Although the equipment requires some maintenance, the user interface (UI) is intuitive and very user-friendly.

For those customers wanting a sit-down meal, more FCRs are adding table tracking technology, such as Jason's Deli. This solution uses Radiofrequency Identification (RFID) tags to broadcast the customer’s seating location to the kitchen, eliminating the time table runners spend searching for the right table. It also means customers get food that’s fresh and hot. Additionally, this technology offers the business the ability to track against delivery goals to ensure the customer experience is maintained at quality levels.

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Meeting customer expectations through rapid delivery

An ever-increasing pace of life means customers don’t always have the time to linger over their meals. FCR operators are accommodating this need for speed by improving the convenience of carry-out orders, as well as improving end-to- end service for dine-in guests. Just as customers expect a quality product, they also expect to have it quickly, whether seated or on-the-go.

Panera Bread Chipotle Mexican Jason's Deli Ranking: 3rd of 10 Grill Ranking: 9th of 10 Speed Sentiment Score: Ranking: 4th of 10 Speed Sentiment Score: 79.1 Speed Sentiment Score: 70.7 Reason(s) for success: 78.4 Reason(s) for success: • Kiosks – allow Reason(s) for success: • Table tracking counter staff to focus • Mobile app that technology - RFID on bringing food to includes features like system broadcasts customers' tables mobile payments, the exact seating • Mobile/online ordering and keep inventory of location of the guest minimizes order errors past orders for quick to eliminate runners reordering searching for tables

Results: Speed and Results: Speeding up Results: Food gets accuracy flow delivered faster and fresher

Source: LRS 2014 Speed of Service Report Source: LRS 2014 Speed of Service Report Source: LRS 2014 Speed of Service Report

Source: 2014 Speed of Service Report, LRS.

Trends: Where’s All This Headed?

It's the nature of restaurants to innovate. The most successful operators over the next 25 years will be those that continue to evolve their businesses to stay in tune with customer preferences. Kimberly Savilonis Senior VP of Strategic Marketing GE Capital, Franchise Finance

Fast casual is one of the biggest, brightest stars to appear in the food service sky in decades. Like any star, as it moves it exerts considerable pull on everything around it. Whether FCR, QSR, FSR or any other segment, only those that evolve to meet today’s consumer demands remain competitive.

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Here are some of the current effects fast casual is having on its neighboring segments and a look at where it may be headed next.

Fast casual continues siphoning market share from QSR/FSR

According to market researcher Euromonitor, the market for fast casual has grown by 550 percent since 1999, when the concept was first identified as more than an anomaly. Much of that increase happened over the last decade.

Since 2004, in spite of the recession, fast casual has consistently drawn market share from both QSR and FSR segments. While fast food still makes up the majority of the limited-service industry’s revenues, giants like McDonald’s, KFC and are being stunted by the growth of fast casual.

According to Forbes, FCR traffic growth has exceeded that of every other restaurant segment for five years running. By 2014, the newcomer had grown to 15 percent of the the $231 billion limited-service segment, a jump of 11 percent in sales and 8 percent in operational units over the previous year.

This continued pull on fast food and casual dining is evidenced by market share data that shows the quick service and casual segments retracting while fast casual sees significant growth.

Source: Forbes

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Market Share Change

2013 Market 2014 Market Percentage Point Top 500 Segment Share Share Change

Fine Dining 1.2% 1.2% 0.0

Casual Dining 20.4% 20.3% -0.1

Midscale 5.4% 5.3% -0.1

Fast Casual 10.1% 11.0% 0.9

Quick Service 62.9% 62.1% -0.8

Grand Total 100% 100% 0.0

Source: LRS/Technomic. Change in Market Share, by segment, 2013-2014. The Digital Resource Library; Technomic Inc.

What’s trending across segments (FCR, QSR and FSR)?

Besides the shearing effect on market share, the growing mass of fast casual is also causing changes in the other industry segments.

Here are the most notable changes and trends for FCR, QSR and FSR in 2015.

Consumers’ restaurant selection criteria are changing

Fast casual gave diners a new kind of experience, and the reaction was overwhelmingly positive. Now customer expectations are rising even higher. When taking a look at how some of the major drivers of restaurant selection fare among the three segments, it’s interesting to note that customers rank the importance of taste and flavor of the food, food quality and quality of food when ordered for takeout as the top attributes.

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2014 Top 6 "Very Important" Drivers for Restaurant Selection

Casual Dining Fast Casual Quick Service

67.3% 66.1% 65.5% 64.9% 62% 59.9%

46.5% 43.3% 44.5%

Taste Food Quality Quality of takeout food

44.3% 43.8% 43% 39% 40.6% 39.5% 44.5% 40.6% 38.9%

Food visually Offer good Offer good value appealing value through through quick, high-quality items high–quality service

Source:LRS/Technomic Consumer Restaurant Brand Metrics; Technomic Inc. 2014 Consumer “Very Important” Drivers for Restaurant Selection, by Segment Q: How do you rate the importance of each of the following attributes when deciding which restaurant you will visit? Note: Ratings are on a scale is 1-5 where 1=very unimportant, 2=unimportant, 3=neither important nor unimportant, 4=important and 5=very important. 15 GRAVITATIONAL PULL OF FAST CASUAL

Fast Casual Restaurants keep rising to the challenge

With higher consumer expectations driving their selection process and loyalty when it comes to restaurants, FCRs are continually evolving to keep pace. How?

Technology adoptions

Since FCR operators are increasingly integrating technology tools to improve customer the customer experience, mobile apps and online ordering are becoming a popular solution.

Operational Management Systems (OMS)

As restaurants continue to adopt a myriad of technologies, integrating them into a single operational management system (OMS) will be needed. An OMS is conceptually a centralized cloud-enabled connection point for various business devices and applications, making it easier to manage disparate systems from one automation hub.

The benefit of a centralized OMS system would be that many connected systems can interact with one another and corral data for smarter analyses. By identifying patterns between multiple systems, it provides insights that would otherwise remain hidden.

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With that kind of business intelligence, operators can: Devices • Increase business efficiency Cloud • Improve employee productivity Data • Enhance the customer experience

A central OMS solution can connect multiple WiFi and Internet enabled systems such as wait list management tools, POS or kitchen-display systems, HUB or other applications with on-site devices that support location tracking, paging and communications between SMS staff and guests. An OMS integrates disparate tools and solutions to provide better visibility into your business and greater control to streamline and improve operations. The idea is that a single operational management tool monitoring multiple systems can analyze APIs Apps trends and highlight opportunities faster than working with each tool separately.

The main idea is that everything is connected and everything that’s happening can be managed at once and analyzed for trends, red flags and opportunities. This will vastly improve and streamline operations.

Nutritional choices

According to Technomic’s 2014 report, 31 percent of fast casual diners look to find healthy choices on the menu as opposed to 24 percent of fast food customers.

Consumers know that FCRs are more likely to purchase organic, sustainably- raised meats and vegetables. Fast casuals allow guests to fully customize their orders and watch as it is prepared. So while the final calorie count is up to the individual, diners have the choices available to them.

Further more, FCRs are leading the way in replacing or removing ingredients that customers perceive as unwholesome. As previously mentioned, Chipotle has led this initiative with the elimination of GMO ingredients from its menu, and increased purchases of locally grown, organic produce.

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Full service is expanding into fast casual space

As the data shows, fast casual has grown over 550 percent since 1999, more than ten times of either fast food or full service dining. To compete, FSR operators are being drawn towards what makes FCRs so successful without completely abandoning their heritage.

Adaptive characteristics

The main characteristics of the fast casual segment that FSRs are adopting in some way are:

• Speed of service: The LRS Speed of Service Report 2014 shows that casual diners’ expected wait time for food delivery is 12 to 14 minutes, three times what fast casual guests are used to. Today’s customers, especially during the and breakfast rush hours, don’t have time to wait.

• Price point: Research that LRS commissioned from Technomic shows the average check for an individual fast casual diner is $10.11, compared to the $20.12 paid for casual dining. When consumers can get similar food quality at a lower cost, they are increasingly choosing fast casual.

• Technology: A Technomic survey also indicates that consumers expect restaurants to be technology-savvy. This includes not only the guest paging and table location systems adopted by many casual dining chains, but also free Wi-Fi, sophisticated mobile apps, kiosks, table management and digital guest surveys – all of which FCRs embrace.

• Demographic shift: Millennials, defined by Retail Leader as those between 17 and 34 years old, are the fastest growing dining demographic. This fast-moving, mobile and social generation is expected to spend over $200 billion annually by 2017. To cater to this demographic, restaurants must actively market to them and adopt those characteristics drawing them to fast casual.

Recent examples of adaptation

To attract fast casual diners without losing their existing demographic, many FSR chains are launching their own fast casual concepts.

For example, Wolfgang Puck launched its “Express” concept at the UCLA student center, effectively going to where the crowd is. Its sophisticated mobile 18 GRAVITATIONAL PULL OF FAST CASUAL

app allows customers to customize their order and specify arrival or pickup time. Different from Puck’s casual dining experience, Express features interactive digital menus, RFID locators and pagers, allowing guests to wander and socialize freely. Yet its price point meets the budget of the students and faculty where it is located.

Similarly, Denny’s launched its fast casual concept called “The Den,” which is also aimed at college campuses. While it keeps some traditional Denny’s menu items, most of them are aimed at fast casual diners who frequent Chipotle, Smash Burger and the like. With fast counter service and healthier options, The Den tries to shatter Denny’s old school image and capitalize on the fast casual trend.

Millennials and college campuses are not the only targets of FSRs for their new fast casual concepts. Cracker Barrel, Ruby’s and other brands are planning their own fast casual concepts for wider audiences in 2015 and 2016.

Other full service restaurants are opting to attract fast casual diners by updating their existing brand. For example, has launched a new lunch menu at all of its locations for 2015. Adding a full range of affordable, fresh and customizable combinations, it aims to speed up lunch service and address the fast casual price point, while keeping its casual dining atmosphere.

Still others are taking a bold hybrid approach. Labriola Ristorante is a unique concept that offers guests multiple experiences under one roof: a full service Italian restaurant and bar as well as a fast casual cafe and bakery. Starting off as primarily a bakery café, it launched the hybrid concept in 2015 to cater to both full service and fast casual diners. The fast casual menu features a fresh, lighter selection with counter service and tableside delivery aided by table location technology.

Quick service also gravitating towards fast casual

While FSRs are working to appeal to FCR diners, the gravitational pull of fast casual is working on the other end of the spectrum as well. Across the top 500 leading brands, quick service restaurants still have over 62 percent of market share. But the momentum of fast casual is starting to tug at that segment’s market share as well.

Unlike the situation in which FSRs find themselves, QSRs already compete well with FCRs on speed of service and price point. Because of this, fast food also resonates with the millennial demographic, but only to a point.

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Adaptive characteristics

QSRs have already begun to adapt to the shift in demand and are embracing characteristics of fast casual. In what ways are they adjusting?

• Higher-quality and healthier options: Only 24 percent of fast food customers expect to find healthy choices from a fast food menu. Since today’s diners want a menu full of healthier options, QSRs have a lot of ground to make up in consumer perceptions in that area. • Better dine-in experience: The guest experience is more than just the food diners eat. Besides adding fresher, healthier ingredients, QSRs need to offer customers a more inviting atmosphere. • Technology: As with FSRs, consumers expect restaurants to be technology-friendly. While most do not expect fast food joints to have guest pagers and digital satisfaction surveys, they do expect free Wi- Fi connectivity, sophisticated mobile apps and other elements of the connected world.

Recent examples of adaptation

While FSRs are launching separate fast casual concepts or creating hybrid venues, QSR operators are adapting by retrofitting their existing operations. This includes adding technology, refreshing menus and updating the dining environment.

The most difficult task for QSRs is to the change the way diner's perceive them. Consumers simply don’t associate fast food with the standard they now expect.

McDonald’s, for example, has taken big steps towards heightening their image. The chain has made numerous announcements on how it plans to capture part of the fast casual traffic. Earlier this year, McDonalds launched a new “Create- Your-Own-Taste” concept in numerous locations. The innovation lets a customer custom-design a burger any way they want using large touchscreen kiosks. Included are a wide variety of toppings never before found on a McDonalds menu. The kiosk also allows the customer to pay with a variety of payment methods.

In some McDonald’s locations, the hi-tech, create-your-own-taste is accompanied by other ideas profound for most QSRs: better ambiance, tableside delivery and improved food presentation. Instead of waiting at the counter, the kiosk dispenses a RFID location device, allowing the customer to take a seat in an upgraded dining room. When the order is ready, the device quickly locates the diner and allows the food runner to deliver their food while

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it’s fresh and hot. Even more, the burger is served open-faced on a real plate and with metal utensils – neither of which are typical features for QSRs.

Cousins Subs is another example of this. With an increase in online ordering, customizable assembly line concepts are taking off in the fast casual and QSR space. allows customers to build their own pizzas, and burritos, which makes the customer feel like they have a vested interest in their food.

McDonald’s, Cousins Subs and many others have recognized the need for an image upgrade, proving that QSRs are open to new ideas. To avoid being overtaken by the fast casual momentum, the need to adapt is loud and clear.

The Millennial Effect

Millennials dine out more than any other demographic, averaging four meals per week at restaurants. Representing over a quarter of the current U.S. population, millennials hold $1.3 trillion in spending power, making them an important driver for the success (or failure) of restaurants in all segments.

The massive growth of fast casual and the relative stagnation of both fast food and casual dining are due to changes in diners’ preferences, attitudes and feelings about their social and physical environments. Since millennials are the fastest growing segment, fast casuals continue to keep their fingers on millennials’ collective pulse.

That includes providing speedy service, without the formality of full service, in a relaxed and social environment.

Casual Dining Fast Casual Quick Service

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Millennials also tend to care more about the environment, locally farmed produce, sustainability and other social causes. That means they will gravitate towards businesses that share and exhibit similar attitudes.

Much of the recent success of FCRs can be attributed to millennials. If QSRs and FSRs are to regain market share, they will have to change their operations and images to attract business from this growing demographic.

Moving Forward: Evolution of QSR, FSR and FCR must continue

If there’s one constant in the restaurant industry, it’s change. Changing cuisines, advancing technology, new kitchen techniques and the constant evolution of customer attitudes and expectations.

Whether QSR, FSR or FCR, a restaurant’s adaptability to change can decide if it stays profitable, and ultimately determines whether or not it survives. A restaurant with outdated prep kitchen equipment can’t keep up with the demand for quick service. The fast food joint that doesn’t have Wi-Fi or kiosks won’t succeed against its competitors that do.

While no one can look ahead ten years with absolute certainty, we can make reasonable guesses based on the massive momentum behind fast casual and its effect on other segments:

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• Fast casual will continue following and adapting to changes in customer attitudes, so it will continue gaining market share. • Quick service will gravitate towards the fast casual ideal by adding fresher, more customizable menu options, and by creating a more inviting dine-in atmosphere. • Full service will gravitate towards the fast casual standard by offering speedier carry-out options and faster, more efficient service and guest management. • The digital revolution will continue as mobile device capabilities consistently increase consumer expectations and operators try to keep up with the demand. • The need for speed will continue, but so will the need for community. While consumers are busier than ever, they still desire to feel that they are contributing to the greater good. • Healthy eating will increase in popularity as consumers become more concerned with the effects of additives and genetically modified foods. • Natural, organic and sustainable food sources will be in demand, both for health reasons and the support of local communities.

What will these segments be called in five years as the gravitational pull of diners’ preferences continues to draw them together? It all depends on the ability to adapt.

How fast food must change

With 62 percent of the industry’s revenue, fast food isn’t going away any time soon. It has its place and its customer base, but growth has been stagnant. The primary focus for QSRs will be improving the quality of the entire dine-in experience.

How casual dining must adapt

At 20.3 percent, full service has less than one-third of the market share of fast food, and almost twice that of fast casual’s 11 percent. Yet while FCRs gained almost a point in 2014, FSRs shrank by 0.1 percent. That means it too must make some changes to protect against further slips in market share. Casual dining already excels in quality of both food and service. The primary focus should be improving speed of service – from the guest's arrival to their departure.

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All segments – fast casual included – will evolve

The world is changing. Fast casuals may have the advantage over QSRs and FSRs in many ways, but as with Panera’s “2.0” transformation, they must evolve as customer sentiments change. At least for fast casuals still in their youth, adaptability is part of the formula.

Technology will continue to be a major factor in satisfying customer expectations, especially for millennials. Capabilities of mobile and online ordering, and the use of tablets and tracking systems, puts the control of the dining experience into the customer’s hands and contributes greatly to streamlining service.

Operational management systems will also play a big part in the growth and success of restaurants. To improve internal efficiency and gain operational insights, FCRs can adopt emerging OMS suites to tie all the individual technologies together. All three restaurant segments can benefit greatly from this visibility into operations as it will provide big data collection, correlation and true business intelligence – all essential elements for adapting to the constant change of customer preferences.

Trends in Annual Revenue Per Segment

Source: LRS/Technomic The Digital Resource Library; Technomic Inc.

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About Long Range Systems

LRS develops technologies that help businesses provide a better customer experience. LRS integrates state-of-the-art messaging and tracking equipment with leading-edge software to streamline communications between guests and staff. LRS’ services portfolio includes a range of solutions for onsite messaging, tracking and operational insights. LRS’ mission is to create seamless integration between equipment, apps and services that help restaurants improve operations and enhance the guest experience.

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LRS Solutions:

Paging Systems – LRS pager solutions include guest paging, staff paging, push-button and two-way radios. The original inventor of the coaster pagers for restaurants 20 years ago, LRS today provides next generation guest notification pagers. The updated version includes features such as a modern, ergonomic form factor, digital numbers, two-way communication and custom messaging capabilities.

Table Tracker – This tool allows fast casual and quick service restaurants to track where guests are sitting for fast and efficient tableside delivery, and are designed for increased order management to support high-volume businesses and provide new in-app and online reporting. The system also allows restaurants to set and monitor benchmarks for delivery times in real time to know what orders need to be expedited or prioritized. The reporting function gives restaurants access to analytics to track performance over time.

On Cue for Restaurants (OCR) – On Cue is the only waitlist app that integrates with multiple hardware tools to form a complete table management solution, and is focused on enabling simplicity and efficiency at the front door. When integrated with LRS guest pagers, OCR provides restaurant guests the option of being notified by either text message or an LRS guest pager. New in version 2.0 is integration with Table Updater, a handheld device that allows staff to update table status from across the restaurant. Also new is the ability to sync the app across multiple iPads in a single location.

Check Point – Check Point is a tablet-based survey application that helps restaurants collect on-site customer feedback. The latest version of Check Point allows management to add verification questions that must be answered prior to surveying a guest. This feature allows the business to collect key information about the guest such as their table number, server name or order type. With this information, the guest experience can be tracked against key metrics to determine specific issues with staff or operations.

All of these solutions are aimed at giving businesses in the restaurant and hospitality sector confidence that operations are running smoothly and guests are well cared for. For more information, visit www.lrsus.com. To talk to an expert, call 1.800.577.8101.