In a food industry once clearly split between quick service chains and traditional sit down establishments, companies like Chipotle Mexican Grill (NYSE:CMG), Panera Bread (NASDAQ:PNRA), and Noodles & Co. (NASDAQ:NDLS) are blurring the line.
According to Foodservice E&S, the "fast casual" restaurant category features: (1) higher priced menus than fast food, (2) healthier, sometimes organic foods, (3) "made-to-order" cooking, and (4) stylish interiors. Slower service times are an issue, but only for some chains. Chipotle and Qdoba, owned by Jack in the Box (NASDAQ:JACK), have largely avoided this flaw. And more and more of them are now offering to cater your next event.
A Chipotle wedding?
Conventionally, restaurants or event planning companies cater serious, life-altering events like wedding receptions and graduation parties. So who would cater their wedding with Chipotle?
In fact, with a date set for next year, I'm considering it.
If you've read this far, I predict you're either a full-fledged supporter of this option, or staunchly against it. For those against my idea, I get it. On the dining spectrum, many people view fast casual as a much closer relative to fast food than a traditional restaurant. And no one in their right mind would serve fast food at their wedding.
On the other hand, anyone against Chipotle really doesn't understand what makes it Chipotle. Ingredients are locally sourced, and most meat is naturally raised and antibiotic free. A reasonable portion of its food is organic, and the company is increasing this percentage every year. From a quality standpoint, Fool analysts prefer it to Yum! Brands (NYSE: YUM) Taco Bell by a landslide, and other outlets like it better than peers Qdoba and Moe's.
With regard to Chipotle's catering service, the company began offering it nationwide last month. On its website, Chipotle offers a few different choices, but the most reasonable is "The Big Spread" for 20 to 200 people. It includes the regular rice, beans, salsa, and side options with your choice of three meats and fajita vegetables. Literally anyone can find something they like here. Vegan? Try the sofritas. Hate carbs? Get a bowl. Love guacamole? Get a boatload of it.
The cost is affordable at $13.50 per person, and Chipotle's "Two Meat Spread" is $12 a head. By comparison, more traditional caterers range between $25 and $50 a person, depending on whom you talk to, and upscale establishments are even more expensive.
Chipotle's not the only one
Other fast casual restaurants are doing it too, albeit each in their own way. Panera will deliver most of its menu items in bulk, but it's not exactly the place to go for large events. Qdoba will cater large parties between $8 and $10 a person, while Noodles and the privately held Panda Express are geared toward smaller office gatherings.
West Coast-located Freebirds World Burrito, meanwhile, will serve up to 10,000 people at about $10 each, and the Midwest's Potbelly (NASDAQ:PBPB) can accommodate big events as well. In fact, of the 30 most well known fast casual restaurants, 19 offer a catering service.
Most of the chains that don't cater in this group are burger joints. Five Guys explains this phenomenon rather simply, stating: "Unfortunately, we do not cater as our food does not hold up well under those circumstances." It makes sense.
The economics of it all
The reasoning behind this trend is simple. It all comes down to the margins. In most cases, fast casual caterers are able to charge higher prices than they do in-house. At places like Chipotle and Qdoba, these prices are translated to an upcharge of about 10% to 20% per person, while most of the other chains mentioned above have a flat fee that varies depending on the size of the party.
Now, the overall size of the fast-casual sub-industry varies depending on the analyst. It's worth about $17 billion according to Euromonitor International. Technomic estimates this number to be a bit higher, at $31 billion, and QSR Magazine places this figure at $22 billion. The one certainty that most experts can agree upon is that fast casual makes up about 10% of the overall fast-food industry.
Within this select group, the 'big six' of Chipotle, Panera, Noodles, Qdoba, Potbelly, and Panda Express account for roughly 40% of the market. QSR calculates that most of the remaining 60% is divided among more than 300 different chains.
What the future holds
Thus, a few inferences can be drawn from the data:
- The size of the fast-casual sub-industry is significant
- Many of its biggest players have adopted catering programs
- Catering margins are assumed to be higher than in-store margins
- Most burger-themed fast casuals do not cater
- Only a select few cater large events, including Chipotle, Qdoba and Potbelly
On the whole, the fast-casual sub-industry continues to grow quicker than its fast food peers. As we head toward 2014 and beyond, it's reasonable to expect more fast-casual restaurants to adopt catering programs, which could fuel growth even further. While many of the Mexican and sandwich-oriented chains have entered this business, a significant portion of the market has not.
Within the burger and fries segment, California's In-N-Out Burger is one of the few that offers cookout trailers, which essentially brings the kitchen to you. I wouldn't be surprised if Five Guys or some of its other peers explored this option in the next few years.
With regard to the most established fast casual caterers, challenges still remain. Public perception must be improved, and in the case of Chipotle, there is a potential fix. The burrito chain offers some of the best-quality ingredients around, even better than many higher-priced caterers. If it can focus on these strengths when marketing its catering business, while peppering in buzzwords like 'organic' and 'antibiotic free,' people may begin to see it as a legitimate option for major events like weddings and graduations.
I already do.
Fool contributor Jake Mann has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill and Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.