Is there a Ceiling for Fast-Casual Franchise Growth?

Fast-casual restaurants have been some of the most successful concepts in the past several years, and the future continues to look bright. But no industry or business model experiences uninhibited growth. While there is no ceiling for the evolution of the fast-casual segment, generally speaking, there are challenges ahead.

Here are some of the hurdles for 2019 and beyond, and potential solutions:

Rising Minimum Wage

As cities and states enact laws to raise the minimum wage, many businesses, including restaurants of all kinds, are fretting over the impact they will have on profitability. Some restaurants in locales where higher wages are in effect are cutting the number of hours employees work and raising menu prices.

But, paying higher wages isn’t a trend. It’s backed by a nationwide movement and the majority of Americans support a higher minimum wage. Restaurant owners need to figure out long-term solutions for keeping their restaurants profitable while paying their workers more. In the competitive world of fast-casual restaurant franchises, this is especially pressing.

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Franchisees who scale back hours too much run the risk of customer service taking a hit, which can lead to negative reviews. If this happens system-wide, the brand can suffer. Franchisees may have trouble attracting workers down the road, too. The consequences can be even more severe for emerging franchises.

Fast-casual franchises need to think strategically to live with rising wages. Here are a few ways to combat the strain:

  • Develop a local pricing strategy – Analyze customer behavior at each location, and increase prices accordingly.
  • Do not rush to raise prices – Be selective about which items you will increase prices on, but don’t raise them all at the same time. Know which items customers are willing to pay more for.
  • Entice customers to purchase higher margin items – Use new photos, redesign the menu and encourage customers to buy multiple higher-margin items at one time.
  • Use customer feedback to create new menu items – Your guests will appreciate that you listen to them. Utilizing your loyal customers to gain new menu research is a great way to keep them engaged in your business. Create a MVP group of core customers and ask them questions regarding upcoming menu items. They will be appreciative to provide you feedback.
  • Generate excitement about menu changes – Promote special offers, especially those customers helped create. Remember to attract new customers as well as retain the regulars.
  • Provide more quality at a value – Too many times we think cut food costs and quality to improve margin, when the answer may be the exact opposite. Consider improving quality to retain customers while still delivering a value-based solution.

The Rise of Third-Party Delivery

Convenience is a double-edged sword. On one hand, it drives consumers to fast-casual restaurants. But, on the other hand, convenience also drives consumers’ demand for food delivered to them. It’s the latter, by third-party delivery services, that currently challenges fast-casual restaurant franchises.

Third-party delivery is big business, thanks to the growing demand for convenience. In 2018, it represented $9 billion in restaurant sales and is anticipated to represent $16 billion by 2022. The demand is causing restaurants, including fast casuals, to partner with one or more of these delivery services. While third-party delivery potentially expands your customer base, it doesn’t come cheap. Partnerships with delivery services are another expense fast-casual franchisees have to contend with, but have to pay in order to compete.

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Some large chains are developing their own delivery services, which requires capital but cuts out the cost per order, which range between 5 and 40 percent depending on the delivery service. Emerging fast-casual franchise brands struggle to form delivery fleets and are left to work with third-party services. They’ll just have to be judicious:

  • Reliability is a must – Partner with a third-party delivery service that gets food to customers without fail and in a timely manner, lest their performance reflect poorly on your brand.
  • They have to generate revenue – You’re selling food to your customers, so regardless of how it gets to them, you should still make money. Pick a third-party delivery service that allows you to make a profit, and not be a financial drain.
  • Allow your franchisees to decide – Let the owners of your fast casual brand pick which delivery service to use in their markets. They’ll know which will work best for them.
  • Consider all your options – Don’t simply engage in every delivery marketplace because your competition is there. Continue considering and developing all other options so you and your franchisees will have more profitable choices in the future.

Finding New Ways to Engage Customers

Americans are constantly distracted, mostly by our smartphones. There’s no sign that this societal habit will end any time soon. Restaurant owners, meanwhile, are challenged by how they’re going to distract consumers away from their phones and into their restaurants.

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Emerging fast-casual franchise concepts can capitalize on this with gamification. By providing video games consumers can play on their phones, tablets, laptops or desktop computers, you’re are engaging them and influencing them to dine at the nearest location. These games typically employ branded characters, which players use to accrue points. Some larger brands have used games to promote limited-time offers and some allow players to redeem points for free or discounted menu items.

Look Ahead and Plan

As is the case in any industry, there will always be hurdles for fast-casual restaurants to get over. But, those that are part of a franchise system will fare the best thanks to the support provided by the franchisor. However, franchisors need to look down the road to see what challenges are on the horizon and create a plan of action.

For help navigating the challenges for fast casual restaurant concepts, turn to Winmark Franchise Partners. With 30 years of franchising experience and more than 800 franchise owners representing almost 1,250 locations for five brands, Winmark Franchise Partners can you help grow your brand through sound strategy and expert franchising advice. Contact us here or at (844) 234-8520.

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