The concept of fast-casual restaurants


Dec. 3 2014, Updated 8:01 a.m. ET

The concept

Fast-casual restaurants are a hybrid of fast-food and casual-dining restaurants. Fast-casual restaurants offer minimal table service. The menu is limited and moderately priced, somewhere between fast-food and casual-dining restaurants. Panera Bread (PNRA) has an average menu price of $8 to $15, compared to $20 at a Bloomin’ Brands (BLMN) casual-dining restaurant.

Many people like fast-casual restaurants for the high-quality food and affordable price points. Food at these restaurants is usually prepared fresh with high-quality ingredients. Chipotle Mexican Grill (CMG), for example, sources its ingredients from local producers. Customers can customize menu items at the counter.

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The players

Chipotle Mexican Grill (CMG) had sales worth $3.21 billion as of fiscal year 2013. Panera Bread (PNRA) had sales worth $2.38 billion, Noodles & Co (NDLS) had $0.35 billion, and Potbelly (PBPB) had $0.3 billion over the same period. Other fast-casual restaurants include Qdoba Mexican Grill under the umbrella of Jack in the Box (JACK) and Subway and Quiznos Subs. You can gain exposure to the restaurant industry through the exchange-traded funds (or ETFs) Consumer Discretionary Select Sector standard and Poors depositary receipt (or SPDR) (XLY).

The average earnings before interest, taxes, depreciation, and amortization (or EBITDA) margin of the above players was 13% in 2013, and the average net profit margin was 6%. Fast-casual restaurants are experiencing high growth with most of the players that have locations and are expanding in the United States. Chipotle Mexican Grill (CMG) had a same-store sales growth of ~19% in 3Q14. We will discuss unit growth and same-store sales in more detail later. In the next part of this series, we will discuss the restaurant concept of casual-dining restaurants.


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