Did Chipotle eat Red Lobster? How upscale fast-food chains like Chipotle upended casual dining.

Dec. 24, 2013, 7:16 a.m. EST

Did Chipotle eat Red Lobster?

How upscale fast-food chains like Chipotle upended casual dining.

By Quentin Fottrell

As casual dining chains like Red Lobster and Olive Garden struggle, customers are turning to upscale fast-food joints like Chipotle and Panera where they can eat and run – without having to ask for the check.

Just days after saying it would either spin off or sell its Red Lobster chain, Darden Restaurant Inc.(NYSE:DRI)   has an activist shareholder calling for a more dramatic breakup of the company, The Wall Street Journal reported last week . Darden’s fiscal second-quarter sales fell 4.6% to $2.05 billion: Same-store sales fell 0.6% at Olive Garden and 4.5% at Red Lobster. Chipotle Mexican Grill Inc.’s(NYSE:CMG)  most recent third-quarter sales, meanwhile, jumped 18% to $827 million; the company announced last week that it will also open a new chain called Pizzeria Locale. “Red Lobster and Olive Garden are really brands that are seen as old-fashioned,” says Julia Gallo-Torres, U.S. food service category manager at research firm Mintel. “They’ve really suffered postrecession.”ALSO SEE: 10 things diners won’t tell you

A new generation of “fast-casual” restaurants is redefining the industry, experts say. American diners want fast food that they believe is healthier than burgers and french fries, Gallo-Torres says, but they want it at the same speed as fast-food restaurants like McDonald’s, Wendy’s and Burger King. For instance, Panera Bread Co. (NASDAQ:PNRA)   reported an 8% rise in sales to $572.5 million in the third quarter. In fact, CEO Ronald M. Shaich said during a conference call in October that due to the store’s long lines they’re actually turning customers away. Restaurants were used to people choosing them based on price, Gallo-Torres says. “Now they have to compete on price and better food.” Overall sales at fast-casual restaurants grew 10.5% to $30 billion in 2013, according to Mintel, and are expected to grow another 27% over the next five years.

American diners are looking for cheaper alternatives to full-service restaurants, but are willing to pay more than fast-food chains. “We’ve not seen an increase in household income for five years,” says Harry Balzer, chief industry analyst for market research firm NPD Group. “Over the last five years, Americans dropped about 50 restaurant purchases annually from their diet,” he says. They still go out nearly 200 times a year, he says, but that also includes a new generation of 18- to 30-year-olds that started eating out in the last 10 years and who are pickier about where they choose to hang out. “They’re looking for new experiences,” Balzer says.

Chipotle’s “Food with Integrity” slogan has been a hit with younger consumers, Balzer says. It sources local and “responsibly raised” meat without antibiotics and added hormones “whenever possible.” Olive Garden and Red Lobster follow FDA guidelines, which allows meat sourced from factory reared animals with some antibiotics, a spokesman for Darden Restaurants says. “Healthier food is all relative,” says Mike Jacobsen, executive director for the Center for Science in the Public Interest, a Washington D.C.-based think tank. A Chipotle chicken and black bean burrito with sour cream, cheese and guacamole has 3,420 milligrams of sodium–young adults should not have more than 2,300 milligrams of sodium per day, he says.