There’s a familiar narrative when we talk about what the rise of fast-casual dining has meant to the restaurant industry. Newcomers such as Chipotle, Panera Bread and Shake Shack have stormed the market with a promise of more upscale ingredients and nicer ambiance than one typically gets at fast-food restaurants, and that has made for turbulent times for old-school players.
Cue a steady stream of headlines such as “How Chipotle Is Killing McDonald’s” or “Subway struggles to keep up with fast-casual competition.”
There’s no doubt that the fast-casual category is, indeed, booming. These restaurants saw a whopping 11.4 percent increase in sales last year, according to industry research firm Technomic. That easily beats the 3.4 percent growth at full-service establishments, as well as the 4.4 percent increase seen at fast-food chains.
However, several years into fast-casual mania, a new analysis of restaurant visitation patterns suggests that the dynamics in the dining industry are somewhat more nuanced than many stories suggest. Location-based marketing company xAd used its technology to analyze 30 million visits to 12 of the largest quick-service restaurants between January and March this year.
Researchers examined just how much overlap there was between customers of one restaurant with customers of another restaurant. In the graphic below, restaurants that are connected to one another by a line have a customer overlap that is at least 30 percent higher than average. The thicker the line, the greater the overlap between the two customer bases. The size of the circle for each restaurant is commensurate with its share of overall foot traffic.
As you can see, the analysis found that Chipotle had its highest customer overlap with Panera. It also shared more customers with Starbucks and Chick-fil-A than it did with fast-food Mexican joint Taco Bell.
Meanwhile, Taco Bell had its strongest overlap in customers with KFC. The particularly strong correlation between diners at these two restaurants may in part reflect the fact that the sister chains, both owned by Yum Brands, are often located geographically close together, sometimes in the same building.
But overall, you can see that, with the exception of some customer overlap between Taco Bell and Chipotle, fast-food restaurants and fast-casual restaurants are essentially siloed.
Here’s why that is important: Surely there are plenty of customers who have traded up from the fast-food standbys for pricier offerings from fast-casual restaurants that they perceive as healthier and fresher. But now that we’re deeper into the fast-casual boom and consumers have adjusted to this new restaurant landscape, it’s worth noting that they tend to stay exclusively in one dining lane.
So if Taco Bell, for example, were to slip into a rough patch, it seems more likely that those dollars are being lost to another fast-food player — not Chipotle. And as Chipotle aims to pull out of the sales spiral it has been in since some of its restaurants were closed because of e. coli contamination, it might be better off not trying to emulate Taco Bell’s new breakfast menu, but instead trying to win over the people getting lunch at Panera.
It’s also noteworthy that McDonald’s still dwarfs the other brands in terms of overall foot traffic, and its customers have very little overlap with other chains. To be sure, this data is from a time period when McDonald’s had only recently added all-day breakfast, a move that seems to be spurring a turnaround after a sustained rough patch. Since this is the first time xAd has crunched this data, it’s hard to know how it might have looked different when Mickey D’s was in the nadir of its sales slump.
Still, it serves as a powerful reminder of McDonald’s uniqueness in the marketplace. For starters, it has more than 36,000 locations, meaning there are just more opportunities for diners to hit up a McDonald’s than, say, a Dunkin’ Donuts, which has 11,000 locations. But McDonald’s customers also tend to be more loyal than any others in the industry, preferring to stick with the Golden Arches as a ritual instead of bouncing around different chains.
“Their brand recognition and loyalty can take them very far and help them weather anything,” said Sarah Ohle, xAd’s senior director of global research.
XAd’s analysis is based on a study of the signals it receives from phones when it serves them mobile advertisements. Its platform serves location-based ads across more than 100,000 different apps.