This Chain Is Gaining on Taco Bell, Burger King, and Wendy's

Forget about Wendy's (NASDAQ: WEN) and Burger King. What McDonald's (MCD 0.38%) really needs to worry about is Chick-fil-A, because it is poised to become the third largest U.S. fast-food chain by sales, according to recently reported data.

Burgers and tacos apparently only go so far in winning the hearts, minds, and stomachs of diners. Restaurant specialist Kalinowski Equity Research says Chick-fil-A, known for its chicken sandwiches and waffle fries and being closed on Sundays, is positioned to hurtle past Taco Bell, Burger King, and Wendy's to knock Subway out of third place.

Image source: Chick-fil-A.

Based on data from food-service specialist Technomic, the analysts at Kalinowski say Chick-fil-A's sales surged 15.5% through July, and based on the chicken joint's 2017 sales of over $9 billion, that would put the chain behind only McDonald's and Starbucks (NASDAQ: SBUX) among the country's largest quick-serve restaurants.

Make no mistake, McDonald's is in no danger of losing its crown anytime soon. Restaurant Business notes that if Chick-fil-A continued to grow at the same heart-thumping rate of 14.2% that it did last year and McDonald's did nothing but run in place, it would take the chicken sandwich specialist 21 years to overtake it.

Doing more with less

McDonald's generated some $37.6 billion in systemwide U.S. sales in 2017 from more than 14,000 restaurants. Starbucks was second with $17.6 billion, also from about 14,000 restaurants. In contrast, Chick-fil-A has around 2,200 locations, and the $9 billion it generated in 2017 was the 50th consecutive year of sales growth.

Its achievement are remarkable. After all, Subway has about 27,000 restaurants; Taco Bell, 7,000; and Burger King, approximately 7,400. And though most of the restaurants saw revenue gains, that has been more a function of higher prices than increased customer traffic. McDonald's went five years without seeing higher guest counts until breaking that streak in 2017 with a 1.9% gain. Through the first nine months of last year, its guest traffic was 2.1% higher. Chick-fil-A's traffic was up 10% through July.

Chick-fil-A stores also generate more revenue per restaurant than rivals. In fact, QSR Magazine data show each of its restaurants makes more money than any other fast-food chain. Starbucks, Subway, Taco Bell, and Burger King don't even make it into the top 10.

Data source: QSR Magazine QSR 50 report 2018; some figures estimated. 

Fighting with one hand tied behind its back

Another reason why the chicken sandwich specialist's surge is all the more impressive is that all its restaurants are open only six days a week. As the company says on its website: "Our founder, Truett Cathy, made the decision to close on Sundays in 1946 when he opened his first restaurant in Hapeville, Georgia. Having worked seven days a week in restaurants open 24 hours, Truett saw the importance of closing on Sundays so that he and his employees could set aside one day to rest and worship if they choose - a practice we uphold today." 

The company's religious bent has upset some people over the years, leading to boycotts, which actually have done little to hurt its reputation with most people. In the fall 2018 "Taking Stock With Teens" report from Piper Jaffray, Chick-fil-A supplanted Starbucks as the most popular restaurant with teenagers across all income levels.

McDonald's has undoubtedly taken notice of Chick-fil-A's growth in sales and reputation over the years as the burger chain has sought to improve the quality of the chicken it serves as well as the beef. And as much as McDonald's has chosen to put its breakfast menu front and center, Chick-fil-A has a breakfast menu of its own that includes a chicken biscuit, lower-calories options such as a bagel and yogurt, hash browns, and classic egg & sausage and egg & bacon sandwiches. Should the chain ramp up store openings (though it has shown no such inclination), it could challenge the burger leader.

Chick-fil-A may have a way to go before it catches McDonald's, but the folks under the Golden Arches would be wise to keep looking over their shoulders.

Check out the latest McDonald's earnings call transcript.