Are Restaurants Gaining By Introducing Healthier Menu Options?
Most fast food restaurants are introducing menu items which are healthier, preservative free, and do not contain artificial ingredients. McDonald’s (NYSE:MCD) has been the front runner in these menu innovations and the company is trying to transform itself from a “junk food” destination to a healthier fast food establishment. Other restaurants such as Chipotle Mexican Grill and Dunkin’ Brands have also eliminated artificial colors and preservatives from their products. Menu innovation at McDonald’s has shown positive results and for the first quarter of 2017, the company reported strong growth in comparable sales.
Line Between Quick Service And Fast Casual Is Blurring
In 2014, McDonald’s suffered the most as the younger population (millennials) shifted preferences towards healthier food. Its comparable sales stayed negative for several quarters as the company worked on initiatives to create a new identity for itself. Quick service restaurants such as Chipotle Mexican Grill attracted traffic, as customers looked for food made from fresh ingredients, which was tasty and served quickly. Surveys reveal that health concerns are moving millennials away from industrially produced and highly processed food which contains preservatives. This trend has led to McDonald’s making the biggest change in its menu of moving away from frozen patties and introducing fresh patties in its quarter pound burgers. However, food made with fresh ingredients and non-industrial grade food is expensive and cannot be served as quickly as a burger made with a frozen patty. These new menu items do not fit in the “cheap and fast” definition of fast food.
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With the improving economic situation, customers are willing to pay extra for better food and this section of the population is growing. Digital innovations have ensured that the convenience factor is taken care of and even if the food takes longer to prepare, customers don’t have to wait in queues to get their orders. With their healthier offerings, quick service restaurants are now entering the space occupied by fast casual chains and the wall between these two categories is likely to fall in 2017.
According to a market study by Technavio, the fast casual restaurant market in the U.S. is likely to reach nearly $67 billion by 2020, growing at a CAGR (compounded annual growth rate) of more than 10%. This growth is driven by millennials who prefer quick service, tasty, and healthy food. Further, since these restaurants are frequented by consumers during work hours also, they get a substantial portion of their daily nutrition needs from the food consumed at these places. This encourages them to eat healthy and they prefer restaurants which have fresh ingredients.
As the wall between quick service and fast casual breaks, we believe restaurants will benefit from serving healthier food. McDonald’s is an example of how menu innovation and introduction of “gourmet “food such as salads has helped the company. Introducing fresh food is not an easy change for companies such as McDonald’s who operate several thousands of restaurants across the globe. “Industry grade” food can be replicated easily, however, fresh patties need better training and food security measures to ensure that the quality is maintained. However, in order to meet customer preferences this change is essential and we believe it will be a slow and steady process. The healthy menu is likely to a long term growth driver for restaurant companies.
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