Sales in this segment are piping hot as consumers remain hungry for freshly made menu items across all
dayparts.

The baked goods at Jazzman’s Café are prepared in an on-site central kitchen and transported to its restaurant site.The bakery café segment is so hot it seems like everyone is trying to get a slice of the action. With Starbucks joining forces with San Francisco bakery café La Boulange, Caribou Coffee’s cobranding agreement with Bruegger’s Bagels, and frozen yogurt chain Red Mango testing the addition of sandwiches and salads, the competitive landscape continues to grow.

“Everyone is trying to compete in fast casual because that’s the segment they’re losing share to,” says Bonnie Riggs, restaurant industry analyst with The NPD Group, a Port Washington, N.Y.-based market research firm.

Consumers made 726 million visits to U.S. bakery café-type establishments in 2013, and this segment’s revenues grew 6 percent last year, according to NPD. The fast-casual segment, of which bakery cafés are a part, now comprises 6.6 percent of the fast-food category. While overall revenues for the quick-service/fast-food segment remain flat, fast casual continues to grow between 7 percent and 8 percent annually. This is significant, considering that, at the beginning of this decade, fast casual comprised only 1 percent of the total restaurant industry, according to NPD.

“Bakery cafés and fast-casual dining chains continue to do very well, posting great numbers for a slow market,” Riggs says. “Consumers are trading up from fast food and trading down from full-service dining.”

The segment benefits from an increasing number of chains that meet consumers’ desire for fresh, quality food at reasonable prices. Bakery cafés also have been thriving due to menus that include many options consumers perceive to be healthier. “These restaurants are innovative and creative, with food prepared fresh in front of customers,” Riggs says.

Bakery cafés also appeal to a wide demographic. These restaurants are popular with baby boomers, currently the heaviest users of restaurants, in addition to millennials, who have cut back significantly on restaurant visits, says Riggs. Although bakery cafés don’t target families in the way fast-food chains do, that customer segment represents a future expansion opportunity.

While fast-food outlets have a leg up on bakery cafés due to the convenience of drive-thrus, this may not be a point of differentiation in the future. “Bakery café chains are beginning to target missing customers who want to get in and out quickly,” Riggs says. “Panera has added drive-thru service at some of its outlets, recognizing the opportunity to meet these needs.”

Bakery cafés are forecasted to grow at double-digit rates until at least 2022, according to NPD’s data. In contrast, NPD projects the industry as a whole will grow less than a half percent annually. “Fast casual and bakery cafés are where the opportunity is,” Riggs says.