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3 Top Fast-Food Stocks to Buy in 2019

By Daniel B. Kline - Dec 22, 2018 at 4:31PM

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Convenience is a key driver for success.

In fast food, innovation -- both in menu items and in-store technology -- has been the key story of 2018. That will continue through 2019 (and for the foreseeable future) as consumers have shown that they value convenience but can also be swayed by a unique menu offering.

Two of the chains on this list -- McDonald's (MCD -0.54%) and Chipotle (CMG 1.04%) -- have balanced technology innovation with an equal helping of menu innovation. The third, Domino's (DPZ -0.87%), has largely focused on technology-driven convenience and ease of ordering as its key customer acquisition and retention tools.

All three of these fast-food brands have made the heavy investment needed to compete in 2019. In fact, in the new year, they should be able to collect some returns on some of the money they have spent.

The exterior of a McDonald's during the day.

McDonald's has been modernizing its restaurants to add ordering kiosks and delivery. Image source: McDonald's.

The future is now

McDonald's has been building out its Experience of the Future (EOTF) model, which features ordering kiosks, delivery, and other technological improvements. The results have so far been encouraging, with the company posting 13 straight quarters of global same-store growth. During the third-quarter earnings call, CEO Steve Easterbrook laid out how the company's modernization efforts are going in its home market, saying, "The U.S. is maintaining an aggressive pace of modernizing restaurants, completing around 1,000 projects during the quarter. At our current pace, by the end of 2019, we expect to complete over 12,000 restaurants with our Experience of The Future initiative making this as the largest construction project in our history."

That's good news for shareholders as delivery has proven to be a revenue driver and ordering kiosks should add to check size. In general, EOTF is upgrading the McDonald's experience and that should resonate with the chain's customers.

In addition, McDonald's has slowly changed its menu. It now uses fresh beef in its premium burgers, and has maintained a healthy schedule of limited-time-offers.

Convenient pizza

Domino's has pioneered the business model of prizing convenience over everything else by steadily investing in its app and its delivery infrastructure to make it easy to get a pizza.

That has led to 30 straight quarters of domestic same-store sales growth and an astounding 99 quarters of international same-store sales growth. It's a model that has proven to work as the company continues to steadily grow its store count every quarter.

Though Domino's may not exactly offer great pizza, it does provide a familiar, consistent product that's easy for customers to get.

A new Chipotle

When Brian Niccol took over as CEO, many feared that he would dumb down the brand. That's understandable given his past role as CEO of Taco Bell, but it's not what he did. In his new position, Niccol ramped up menu innovation and focused on execution.

Chipotle had always offered quality food at decent prices, but it did not necessarily do so efficiently. Niccol worked to add second make lines -- the assembly lines that the burrito-maker's famous for -- to fulfill digital orders and to improve the company's app. Those are changes that speak directly to customer experience.

On the menu side, the new CEO did not add gimmicky products like those that Taco Bell offers. Instead, he has worked on creating new menu items that enhance the core brand while also enticing increased visits and luring lapsed customers back.

It's about customers

The fast-food business has become about getting customers what they want -- exactly what they want -- when and where they want it. These three brands have all shown that technology matters. Just as McDonald's and Chipotle have demonstrated that the right food can enhance that, Domino's has proven that OK food plus exceptional technology can drive success as well.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$259.23 (-0.54%) $-1.41
Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,600.78 (1.04%) $16.45
Domino's Pizza, Inc. Stock Quote
Domino's Pizza, Inc.
DPZ
$387.93 (-0.87%) $-3.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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