August 4th, 2016
Consumers have a fast-food habit that’s killing Chipotle’s business model
Is the era of the fast casual coming to a close?
Visits to fast-food chains grew 5% faster than those to fast-casual chains in the second quarter of 2016, according to a report from location-based marketing company xAd released on Thursday.
“QSR giants are slowly but surely gaining share back from fast casual challengers as they offer cheaper food promotions, such as KFC’s $5 Fill Ups and updated in-store experiences including Taco Bell’s new higher-end cantinas,” reads the reports.
In other words, fast-food giants such as McDonald’s, KFC, and Taco Bell have figured out how to offer the best of both worlds, drawing from fast-casuals’ upscale aesthetics while undercutting their competitors’ prices.
2016 has been a year of steep discounts in the world of fast-food, with deals such as Wendy’s ‘four for $4,’ Burger King’s ‘five for $4’ and McDonald’s McPick 2.
In May, the NPD Group estimated McDonald’s, Burger King, and Wendy’s have sold more than 100 million additional combo meals since late 2015 thanks to these deals, which especially appeal to customers without brand loyalty. In many cases, these customers were being drawn away from fast-casual chains.
Another bonus for fast food, according to xAd, is the fact that customers tend to visit the chains more in the morning, late at night, and on weekends. Meanwhile, fast-casual restaurants are typically not open early in the morning or late at night and get their biggest boosts during weekday lunch and dinner hours — a more limited window to grow sales.
Of course, another part of the perceived slow in the growth of fast casuals is simply due to Chipotle’s struggles.
Chipotle seems to be trying to take notes from the fast-food industry’s playbook, trying to bring customers back to the chain by providing uniquely good value. The burrito chain was able to boost traffic in April with food giveaways, but visits dropped when the promotion ended in mid-May. In July, the chain introduced its first rewards program, Chiptopia.
However, part of Chipotle’s struggles may not be due simply to the aftermath of the E. coli crisis, but instead due to menu fatigue, as customers grow tired of the chain’s unchanging menu. Chipotle’s success was built on its menu’s simplicity — but now, analysts are saying it could doom the company.
Chipotle’s simplistic structure is one that endless fast-casuals have copied, with restaurants claiming to be everything from the Chipotle of Hawaiian food to the Chipotle of Indian food. If customers are getting menu fatigue at Chipotle, perhaps it will strike at similarly-structured fast casuals as well.
Fast casual seemed, for a time, like it could spell the end of the fast-food industry. However, as fast-food chains have upped their food quality and cut prices, it seems that the traditional fast-food chains may have the last laugh in the battle against fast casuals.