When Fast Casual Disrupts Finance…

There’s a classic business rule that says we can only pick two of the following three things: price, quality, and service. We can control the two we pick, but the third one will be set by market preferences. While it’s still a useful model, modern companies have cracked the “2-of-3 rule” wide open. 

Think about the restaurant business. Casual restaurants select quality and service, leaving price tolerance up to the market. They live and die by how much you are willing to pay for a decent meal where someone else sets and clears the tables with a smile for you. Fast food restaurants select price and quality, albeit not a terribly high quality, and leave service expectations up to the market. They live and die by the saved costs of not needing additional staff, but you’ll have to accept the eye-rolls from the teenager at the register. 

If we apply the same model to the finance industry, we can understand how most full service planners are like local casual restaurants (quality and service, pay up in price relative to the drive through alternative), and discount brokers are like fast food joints (low price and quality, but you’ll suffer for service in the call center queue when you can’t figure it out yourself online). Where those basics really start to matter is when we consider how shifting preferences have disrupted the restaurant market and will continue to disrupt the financial industry going forward.

Danny Meyer, Shake Shack founder, and successful NYC restaurateur, took issue with the 2-of-3 rule. From his perspective, he couldn’t see why one needed to allocate whole numbers to get to 2. Why not leave less up to the market in one category, but give the market a little more control in others? The fast casual restaurants like Shake Shack, Chipotle, and Panera will give you 0.75 of the casual dining price and quality with 0.5 of the service, and that still adds up to 2. By controlling for what variables the market will be Ok with – higher priced food in a classier feeling dining room where one still has to bus their tray – these fast casual restaurants were able to take market share from both fast food and fine/casual restaurants.

Never one to be left out, the fast casual model is rising in finance too. Similarly, it appeals to the demographics with the fastest growing control of wealth, aka 18-34-year-olds with some disposable income, aka the youngest kids of our best clients, aka millennials. Market demands tell us how people like to be served, and this alternative to both the upper-middle and the lower end is increasingly popular for a reason. It signals to both parents and peers that “we’re not going to eat that fast stuff, but we also don’t need to drop more money at your so-called fancy place either.” The social psychology of their success is another topic altogether.

To be clear, luxury (or fine dining) will not go away. The fancy steakhouse will still be a status signal full of mutton chops and fine wine, but the fast and casual experience will continue to merge and spill over into other industries. Some financial outfits will pull this off –but their market will be small since we can’t all have tech CEOs for clients. Do despite everyone wanting to connect with “the next generation,” few are actually talking about what’s working across industries beyond “just add more tech – they love that stuff!” When we look deeper into the 2-of-3 rule like Meyer did, we can see that if we can figure out how to keep cost a little bit lower, keep the perceived quality high, and let them do a little more self-service, then we can win on their terms. The opportunity here, especially when it comes to future decades of wealth management business, will be much more massive than a Chipotle burrito or a Panera salad. Much, much more.