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Fast-Food Restaurants: Investing Essentials

Rick Munarriz
August 5, 2014

Since the first drive-thru window opened in the late 1940s, this country has been obsessed with the convenience and low prices of fast-food restaurants. They're quick. They're typically light on the pocketbook. There is usually an open one nearby.

Fast-food restaurants are everywhere. They may also be in your portfolio.

What is the fast-food restaurants industry?

Fast food represents the largest segment of the restaurant industry. A whopping 78% of all dining establishments in this country are considered part of the quick-service restaurants, or QSR, family that many define as the fast-food sector. 

Burger joints are the chains that most consumers and investors associate with fast food. McDonald's is the world's biggest burger flipper, with more than 35,000 locations serving roughly 70 million customers in over 100 different countries on any given day. Burger King and Wendy's round out the three biggest players among hamburger restaurants, but that's naturally not the only specialty found under the fast-food restaurants umbrella. KFC (part of Yum! Brands), Chick-fil-A, and Popeyes Louisiana Kitchen are the largest chicken chains. Several taco, sandwich, and ethnic-food chains also fly the fast-food banner.

If a restaurant has a drive-thru window or you order at the counter, it used to be a pretty safe bet that you'd be chowing down on fast food within a few minutes of ordering. The exception these days is the growing fast-casual segment that has split off from the fast-food family. Fast casual is where gourmet burritos, casual dining-quality sandwiches, and other eats are paired up with the counter-based ordering speed and convenience of fast food.

How big is the fast-food restaurants industry?

Driving down the street of any densely populated city will show that there's no shortage of burger joints, chicken shops, and other fast-food options. With more than 300,000 quick-service restaurants across the country, you're never too far away from a pair of golden arches, Colonel Sanders' visage, or any of the iconic chain logos. 

This is an industry topping $200 billion in annual sales, according to Bloomberg. With more people on the go, lacking time to make meals at home, and trying to stretch their dining dollar, the industry should continue to grow.

How does the fast-food restaurants industry work?

Franchising is a big part of the industry. For example, a whopping 80% of McDonald's restaurants worldwide are owned by local franchisees as of the summer of 2014. 

It's easy to see why fast-food restaurants are a popular choice for potential owners. Despite the hefty up-front costs, ongoing royalty payments, and inability to veer off the set menu, these chains offer brand appeal backed by national marketing campaigns. Many franchisees would probably love to open their own place, but given the high failure rate of indie eateries, going the proven fast-food route is a safer business decision.