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.
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
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
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
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.
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.
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) 452-4600.