Chipotle, Potbelly, Qdoba are sinking into fast-casual malaise

FRESH ingredients, no tipping and sleek design made fastcasual restaurants a darling of the millennial customers every business strives to attract.

The hot streak is over. The category’s once- enviable growth looks like it’s hit a plateau. This year, US fast- casual sales growth will slow to between six per cent and seven per cent from about eight per cent in 2016, according to industry consultant Pentallect. In each of the prior five years, sales had grown between 10 per cent and 11 per cent.

“The segment has become saturated and has some issues,” said Bob Goldin, a Chicagobased Pentallect partner. “There are signs of maturity.”

There’s turmoil throughout the industry. Noodles & Co. and Pie Five, which sells personalised pizzas, are closing locations. Red Robin Gourmet Burgers abandoned its fast- casual Burger Works venture, shuttering outlets and re-branding others. Mexican-food seller Qdoba is delaying new openings amid falling sales. Sandwich maker Potbelly said it expects negative sales for the year as its largestvolume restaurant closes. And Zoe’s Kitchen has posted slower growth lately.

The fast- casual genre got rolling in the 1990s, with Boston Market, Fazoli’s and Einstein Bros. luring diners with convenient and affordable meals that were a step above fast food. More chains popped up, many of them went public, and stock prices skyrocketed. But betterquality fast food for less money, companies that push cook-ityourself meal kits and the homelike comfort of mom-and-pop restaurants are taking a bite out of sales.

“There’s some pretty strong pressure against the fast casuals,” said Jean Birch, chief executive officer of take- andbake pizza chain Papa Murphy’s Holdings. Birch, who previously led IHOP, said McDonald’s and Wendy’s are doing a better job on quality – and have lower prices.

Fast- casual restaurant stocks lost 14 per cent last year, according to the Bloomberg Fast- Casual Restaurants Index, compared with a 0.9 per cent gain for the S& P 500 Restaurants Index.

Americans are increasingly looking for the convenience of delivered food, as well as cheaper prices, especially after a bout of deflation made buying groceries less expensive. Fast- casual meals usually carry a minimum US$ 10 price tag, and the companies have largely lagged in delivery and mobile ordering. — WPBloomberg