Much has been made of fast casual’s potential sling-shot out of the COVID-19 crater. It’s a notion that tugs at some familiar examples. When the Great Recession smothered retail in 2008–2010, it was fast casual that rode lowered barriers to entry. In 2017, industry consultant Pentallect Inc. said fast casual growth slowed to between 6–7 percent from about 8 percent the year before. This was a headliner at the time. Why? Because fast casual boomed 10–11 percent in the five years prior.

It proved a couple of things. Firstly, fast casual and its entrepreneurial-fueled DNA flooded gaps left behind by the rationalization of overleveraged brands. And then things got crowded.

In general, consumers benefited since they had no shortage of options. The industry enjoyed 20-plus years of unit growth. But supply started to peak in 2018–2019. Following unit expansion of 8–9 percent year-after-year from 2010 to 2017, fast casual pulled back, rising just 2 percent in spring 2019, according to consultancy Green Circle.

This created an intensely competitive environment that forced returns on invested capital to narrow for all but the top brands. If we think in terms of a post-coronavirus landscape, the unfortunate closure of 90,000 or so restaurants (per the National Restaurant Association) should leave behind a thinner supply base that will lead to improved competitive dynamics for concepts that do make it out. Fewer stores grappling for share of consumer dollars spent on food away from home. In that, a more rationalized field of restaurants that also opens favorable real estate opportunities.

Where does fast casual fit in? Even before the crisis, a glut of commercial real estate within urban markets drove rent to stabilize. For instance, the amount of empty retail space in New York City climbed to 11 million square feet in 2017, double what it was in 2007, Green Circle pointed out.

The pandemic exacerbated a precarious situation. “In addition to the countless small retail and restaurant businesses that may be forced to permanently vacate their commercial spaces because they can no long afford them, a growing number of corporate chains is also beginning to prove unwilling or able to pay their rent. These store closures are sure to create an overhang of real estate inventory, leading to lower rent for the surviving chains,” Green Circle said

This rise in vacancy has the potential to reduce commercial rent and surface tenant improvement packages made available by landlords ready to fill their spaces.

When you consider all of this, plus where fast casuals tend to spring up and how this was always a real estate conversation, it draws an interesting picture. The total dollars spent by millennials and Gen Z continues to grow versus other age groups, particularly within restaurants, Green Circle added. And thus, consumers from these generations could move away from traditional quick-serve concepts and trade up to healthier fast-casual alternatives in the years to come.

Yet is it so cut-and-dry?

Here’s a point made by Firehouse Subs CEO Don Fox: “The economic fundamentals are still akin to that of the 1990s,” he said. “The post-pandemic regeneration of the restaurant industry may well sprout from the fertile ground that gave birth to fast casual, creating a renaissance in restaurant development for the segment. Some brands will lean into free-standing buildings, and drive thrus will be coveted. The line will increasingly blur between quick service and fast casual. But the economics have not changed all that much, and it is in the realm of leased in-line space where the current white space will likely be filled.”

To go back in time, the “fertile ground” Fox referenced was born from a quandary. Operators sought to launch innovative concepts and compete with quick-serve giants, and so they turned to in-line, leased real estate, which could be developed more affordably (as opposed to ground-up builds and capital requirements north of $1 million before the doors opened). These became increasingly common launch pads for fast-growing pizza and sandwich chains. And eventually, the incubator that would become fast casual, Fox said.

But let’s zero in on a different point Fox made—this idea of the lines between quick service and fast casual blurring.

Location technology company Bluedot recently released its latest “State of What Feeds Us,” report, which has kept tabs on consumer behavior and restaurant habits throughout the pandemic.

The latest edition offered a year in review of shifting preference precipitated by COVID. In addition to the emergence of indoor dining, it explored rising competition between fast food and fast casual as restrictions drop away. What it found was consistent consumer behavior across both categories, signaling the once-vivid dividers between fast food and fast casual might be evaporating.

“It remains to be seen if fast casual brands will win back the customers they lost to fast food restaurants this past year,” said Emil Davityan, Bluedot co-founder and CEO, in a statement.

Before getting into nuances, Bluedot’s data, from a high level, showed fast food outpaced fast casual and casual-dining restaurants by more than 2X in the past months. Forty-five percent of people visited fast-food restaurants mainly, if not exclusively, over fast casual. Visits to fast food over casual dining was slightly higher at 47 percent.

“Brands that accelerated investments in technology and logistics to deliver faster and more frictionless service during the pandemic are beginning to level the playing field, but now there’s a race to roll out restaurants of the future,” Davityan said. “It’s the next evolution of personalization, speed and convenience layered with a unique brand experience that will best position restaurants to win market share.”

The state of fast food

Going through the sections, it will become clear where fast food and fast casual are melding, and what’s going to separate brands as the industry resets.

Starting with fast food, it all begins with the drive-thru. Consumer visits to drive-thrus remain strong, contributing to higher customer lifetime value.

Visited drive-thru the same or more often than before:

• May 2021: 70 percent
• February 2021: 68 percent
• August 2020: 74 percent
• April 2020: 52 percent

 

So we’re talking a 36 percent year-over-year increase. Nine out of 10 respondents in Bluedot’s 1,800-plus consumer study said they’ve visited a drive-thru in the last month.

Nearly 30 percent (29) said personalized deals and offers inspired repeat business. And the No. 1 reason they gave for why they frequent one drive-thru over another was order accuracy, at 67 percent.

Next on the list was speed and wait times (61 percent), followed by the restaurant offering their favorite menu item (50 percent).

Thirty-four percent of consumers ranked drive-thru as the most likely place they would add more menu items (or build their check).

• Drive-thru: 34 percent
• Restaurant app ordering: 24 percent
• At the counter: 20 percent
• Online (web ordering): 18 percent
• Ordering by text: 4 percent

 

Bluedot also asked guests, based on channel and income level, where were additional menu items most likely to be added?

Additionally, there’s been a drop in curbside frequency at fast food. Nearly six out of 10 respondents reported using curbside in May 2021 compared to eight out of 10 in February 2021.

Picked up fast food curbside the same or more often than before:

• May 2021: 47 percent
• February 2021: 67 percent
• August 2020: 62 percent
• April 2020: 45 percent

 

This is as much a reflection of the continued strength in quick-service as anything else. In April 2020, for perspective, more than 50 percent of consumers said they planned to visit the drive-thru less or not go at all. By May 2021, only 10 percent said they’ve not used a drive-thru in the last month. Restaurants did a stellar job promoting safety and improving operations through the channel. And customers came back in response.

In Bluedot’s survey, a few areas of friction (and the opposite) showed. Having to park and flag down staff. Walking up to the mobile pickup area to get in line. Those were the two biggest pain points. Calling or texting upon arrival to notify staff and wait for their order received “medium friction.” As did finding the screen to tap a button on their phone upon arrival to wait for the order.

The lowest friction experience was automatically checking in upon arrival, with the order ready to go.

There is ample opportunity here for quick-serves. As Bluedot puts it, “the arrival experience is failing.”

Manual check-in experiences are common, but not because customers want them.

High friction check-in experiences are over-indexed:

• Call or text: 1.5X
• Walk to pickup area: 1.8X
• Manually alert staff: 1.9X

 

(1X represents an equal number of respondents who expect and subsequently have received this experience).

Of consumers who said they want automated check-ins upon arrival, only 32 percent said they are receiving the service.

The spotlight on fast casual

Per Bluedot’s survey, a full 88 percent of people said they plan to dine-in at fast-food and fast-casual restaurants as indoor service becomes available. So while it’s a sure-fire reality off-premises channels will remain elevated in the months to come, there are guests who want to go back to the “old ways.” Both can be true.

The vast majority of consumers, Bluedot found, have used curbside pickup at fast-casual restaurants over the last month (60 percent). It was often the segment’s answer to the drive-thru, and the fact they didn’t boast the physical infrastructure to build-out the channel in a hurry. Yet brands, from Shake Shack to sweetgreen to Chipotle to Noodles & Company to Starbucks, are quickly changing that as they look to tack on drive-thru or mobile pickup window assets.

Either way, curbside played a massive role for fast casual amid COVID. And it still is. Nearly half (48 percent) of guests said they’ve used curbside pickup the same amount or more often over the last month.

What will they expect when they come back inside, though?

• Sanitizing tables: 70 percent
• Staff wearing masks: 69 percent
• Limited seating/capacity: 52 percent
• Staff wearing gloves: 51 percent
• Safety protocol signs: 40 percent
• Dividers between tables: 33 percent
• QR codes to view the menu: 24 percent
• Order and/order pay from mobile tablet placed on table: 22 percent

 

Whether inside or outside the restaurant, mobile will matter to the post-COVID diner. One out of three consumers said they wanted the ability to order and/or pay using their own phones when dining at fast casual.

The reason customers are picking fast food over fast casual (right now)

Returning to the blurred lines at hand, fast-casual customers expressed heightened interest in drive-thrus in Bluedot’s study. Fifty-one percent said they would visit fast-casual restaurants over fast food more often IF they had a drive-thru.

Only 13 percent of diners said having a drive-thru would not impact how often they visit fast-casual restaurants.

This goes back to Green Circle’s point. You have a battle waging today between convenience and preference. Consumers are showing both a prevalence toward drive-thru and fast casual. But they often don’t have the choice to combine the two, and that’s given fast food an edge in the past COVID-riddled year when personal safety and crowd avoidance eclipsed everything else.

Case in real-time—25 percent of people reported they ate mainly or all fast food in the last month compared to only 21 percent of diners sticking to fast casual.

Fast food versus fast casual visits last month:

• Mainly or all fast food: 45 percent
• 50/50 split: 34 percent
• Mainly or all fast-casual dining: 21 percent

 

But this is changing, and it’s a sign dine-in is returning.

Fast food versus fast casual visits:

100 percent fast food

• Last month: 15 percent
• Plans for upcoming months: 9 percent

 

Mostly fast food

• Last month: 30 percent
• Plans for upcoming months: 25 percent

 

50/50 split

• Last month: 34 percent
• Plans for upcoming months: 41 percent

 

Mostly fast casual

• Last month: 14 percent
• Plans for upcoming months: 19 percent

 

100 percent fast casual

• Last month: 7 percent
• Plans for upcoming months: 6 percent

 

The biggest gain came with a nearly 8 percent jump in respondents who plan to evenly split their time between the two segments. To put it simply, more visits to fast casual are expected soon as guests become more comfortable returning to four-wall dining.

A deal breaker

Here’s one thing about COVID and restaurants. Guests got spoiled when it came to convenience. Broadly, this is a great turn for quick-service. Brands invested in tech and fine-tuned operations to better serve consumers in the way they wanted to be served. That will be evergreen and ever-lasting. Better communication. More targeted loyalty. A firmer understanding of the guest journey and the transactional relationship beyond price points and LTOs. Less reliance on discounting. More on the VIP and experience-driven promise.

Yet it’s a mindset that can’t go backward, either. Eighty-five percent of consumers told Bluedot they would consider or outright leave a perceived long line. That’s up eight points from February.

Apps gets deleted if users still have long wait times once on premise, the report added. Nearly one in two will delete the app and move on.

The top reasons consumers delete apps:

• Order is cold
• Still have to wait
• Doesn’t save time
• Can’t customize order
• Frustrating they have to time their order

 

Of the three channels for pickup, in-store guests consistently voice strong demand for lower wait times.

Percentage of consumers wanting wait times under six minutes:

Drive-thrus

• August 2020: 34 percent
• February 2021: 39 percent
• May 2021: 40 percent

 

Curbside

• August 2020: 33 percent
• February 2021: 46 percent
• May 2021: 38 percent

 

In-store

• August 2020: 36 percent
• February 2021: 51 percent
• May 2021: 48 percent

 

More on mobile, and why it matters

Twenty-eight percent of users said they would delete an app after using. However, three-quarters said they would re-download when needed. And mobile apps are being deleted faster. Only 39 percent of users said they’d keep an app over six months, compared to 46 percent in February 2021.

It appears users have a lot more apps these days. But loyalty can be fleeting. Restaurants are fighting a digital war to not only court mobile users, but to hold them past the “welcome offer.”

Close to 70 percent (68) said they order directly from restaurant apps multiple times a month. It’s a preference over third-party that’s shown up during the past year.

Ordering from restaurant-owned apps versus third-party delivery apps:

Never

• Restaurant app: 399 (respondents)
• Third-party app: 761

 

One to two times a month

• Restaurant app: 837
• Third-party app: 471

 

One to two times a week

• Restaurant app: 268
• Third-party app: 253

 

More than three times a week

• Restaurant app: 127
• Third-party app: 135

 

App convenience remains important. Nearly 40 percent of people said they would download an app to order via one-click.

The top reasons why consumers download apps:

• 1. Fast and easy
• 2. Coupon or deal offers
• 3. Earn and track loyalty points
• 4. Easy payment/prepayment
• 5. To bypass a long line

 

One in three consumers noted they’d download an app if it meant that restaurants knew when they were on their way, or had arrived on-premises.

Five reasons why consumers continue to use apps:

• 1. Simply to place orders: 57 percent
• 2. Easy to access the menu: 50 percent
• 3. Finding deals: 49 percent
• 4. Earning loyalty points: 46 percent
• 5. Customize order: 37 percent

 

The restaurant of the future, and what guests really want

This topic continues to adjust and shift, and shift and adjust. Let’s take the pulse of some recent findings.

What is the No. 1 ask for the restaurant of tomorrow from consumers? A designated drive-thru line for mobile. It outranks every future innovation out there, per Bluedot.

Thirty-one percent of diners said a dedicated drive-thru line for mobile orders would keep them coming back to a specific locale.

What consumers want in a restaurant experience. Their wish list, in other terms.

• A designated drive-thru lane for mobile pickup: 3.5X
• Restaurant automatically knows when I’m on my way or have arrived: 2.2X
• Food kept warm at pickup station: 2X
• Ability to text the restaurant with my order before arrival: 1.9X
• Menuboard that displays my loyalty points and coupon offers: 1.9X
• Menuboard that automatically greets me by name and knows my regular order: 1.3X
• Mobile-only ordering for fast and easy pickup: 1.2X
• Self-service kiosks inside the restaurant for placing my order: 1X

 

Demand is growing for modern menuboards. Forty percent of diners ranked a digital menuboard to confirm their order as one of the top reasons they would revisit a drive thru.

Personalization is on deck, too. One in three said personalized deals and offers would keep them coming back to a specific drive-thru.

Also, greetings matter. Twenty-four percent said they’d like to see a smart menuboard that greets them by name and knows their regular order.

Some other things to consider:

Loyalty programs continue to help restaurants build a branded experience, especially in this sea of virtual concepts and aggregator-fueled ordering options. Nearly half of consumers in Bluedot’s study said they downloaded apps to earn and track loyalty points. Forty-six percent said earning loyalty points is what keeps them using mobile apps.

In the future, 34 percent said they’d like to see a menuboard that displays their loyalty. A coming together of two worlds.

And in the end, that’s COVID’s next chapter at work for restaurants.