Fast-casual restaurant’s niche is healthy for returns

Continued from FP1

It was the Canadian market’s biggest public offering since fashion retailer Aritzia’s $400 million IPO last October.

But it comes at a tepid time for restaurateurs, who are competing with increasingly sophisticated readymade meals from grocery chains. Overall restaurant industry traffic is expected to be flat in Canada in 2017 after a weak 2016, according to market research firm NPD Group, when overall dollar sales rose just two per cent to $51-billion.

In 2015, dollar sales were $50-billion, a one per cent increase over 2014.

As a fast-casual operator, Freshii’s prospects look rosier as it has tapped into a healthy-food-choice niche that even industry titan McDonald’s has been trying to crack.

What distinguishes the so-called fast-casual category from other fast food, or “quick-service” restaurant players such as Tim Hortons is that the average customer cheque is much higher, and “everything is customized and made for you on site,” said Robert Carter, executive director of food service at NPD Group.

“You order it and you have got to wait for it to be prepared. It is redefining what we think of as fast food.”

In Canada, where Freshii has 104 restaurants (it has almost as many right now in the U.S., at 99), the fast casual segment is still relatively small.

It accounts for $322 million a year in sales, but is growing 10 per cent or more year over year, both in customer traffic and in dollars, Carter said.

“Similar to niche operators like Menchie’s Frozen Yogurt, (Freshii) established a point of difference and good foundation in their core offering,” he said.

“Once you start to compete in the broader marketplace in order to grow you have to have a good reason for customers to come to you multiple times, and you have to steal from your competitors, because the overall marketplace is flat.

“Freshii started off with fresh salads and then expanded into bowls and burritos, and now they are expanding into the meal kits, and I expect more menu innovation from them.

“That is where the growth in the market is taking place.”

Corrin said the IPO proceeds will go toward delivery of Freshii’s new boxed meals program and to mobile technology.

One of the fastest-growing restaurant chains running for the last several years, Freshii aims to open 150 to 160 new stores this fiscal year and have as many as 840 locations by the end of fiscal 2019, with annual system-wide sales of $355 million to $365 million.

Corrin doesn’t have a wish list of countries for Freshii to take on next because he believes his restaurant concept will work anywhere in the world.

Going public will not only help Freshii grow in size, but will raise its profile, he added.

“As we continue to drive our mission, the more awareness we have, the more people can eat healthy, and the more people do that, the better for everybody.” must “double down” on its efforts to cope with surging ecommerce, Abney said.

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