There's something about American restaurants that the world loves.

Maybe it's the spirit of experimentation? Or maybe it's the convenience factor? Perhaps the image of the American consumer, free to have someone else do the cooking, is what does it? Whatever it is, U.S. brands comprise the entire list of top 10 largest restaurant stocks available for trade. Fast food, in particular, is a popular destination and stock category.

Incredibly, these sizable restaurant stocks have become huge despite the restaurant industry being notoriously competitive. It's clear that consumers like variety, and it's not particularly difficult to open up a food preparation business anymore (who likes food trucks?). However, the restaurant biz is also a hallmark for low profit margins, and there's a high rate of failure for new entrants. According to research from the Perry Group, over half of all restaurants fail in the first year, with 70% of the survivors closing within three to five years.

Of those that make it beyond year five, though, 90% of them stick around for at least a decade, according to that same research -- which would imply that a winning concept has incredible staying power with consumers, defying the trends that plague the newbies in the industry. That may hold part of the key to understanding why American restaurant brands are so big: They've dialed in a formula that works.

Pair that with a steadily rising portion of the budget that consumers are allocating to dining out (Americans spent more on restaurants than on groceries for the first time in 2019, according to the U.S. Census Bureau), and big restaurant stocks have a good shot at getting even bigger with time. 

A hamburger, fries, drink, and dipping sauces sitting on a red table.

Image source: Getty Images.

The top 10 biggest restaurant stocks

Based on market capitalization (the value of a company calculated by multiplying the number of shares by share price) and number of stores in operation worldwide, following is the list of top 10 biggest restaurant stocks.

Stock

Market Cap

No. of Stores

1. McDonald's (NYSE:MCD)

$157 billion

Over 38,000

2. Starbucks (NASDAQ:SBUX)

$101 billion

30,626

3. Yum! Brands (NYSE:YUM)

$34 billion

48,769

4. Chipotle Mexican Grill (NYSE:CMG)

$22 billion

2,523

5. Restaurant Brands International (NYSE:QSR)

$18 billion

26,036

6. Yum China Holdings (NYSE:YUMC)

$16 billion

8,751

7. Darden Restaurants (NYSE:DRI)

$14 billion

1,793

8. Domino's Pizza (NYSE:DPZ)

$10 billion

16,314

9. Dunkin' Brands Group (NASDAQ:DNKN)

$6.4 billion

21,029

10. Wendy's (NASDAQ:WEN)

$4.6 billion

Over 6,700

Data source: YCharts and company investor relations. Market capitalization data is current as of October 2019.

Here is why each of these companies made it onto the list, and whether they might be worth a look for investment portfolios.

1. McDonald's: the name that started it all

The golden arches is one of the most recognizable logos in the world. The small roadside store the McDonald brothers started in 1948 -- and later taken over by longtime CEO Ray Kroc -- has become hands-down the biggest restaurant stock.  

A red box with McDonald's golden M full of french fries.

Image source: McDonald's.

Granted, Subway -- which is a privately held company -- has more locations than McDonald's. According to the sandwich giant's website, it had 41,405 locations worldwide to McDonald's count of "over 38,000" at the midpoint of 2019. But while Subway gave McDonald's headaches with its "healthy fast food" campaigning in the past, it itself has been the one plagued with problems over the past few years. Over-expansion has meant little to no profit for franchisees, which led Subway to close down over 1,000 locations in the U.S. during 2018 alone.

Plus, Subway doesn't crank out nearly the same volume of food the average McDonald's store does. According to Restaurant Business' annual top 500 list, the average U.S. McDonald's store brought in $2.77 million in revenue -- one of the best numbers in the business and far more than the $400,000 Subway average. The burger chain remains one of the more lucrative franchise models around (93% of worldwide locations are owned and operated by franchisees).

That's not to say everything has come easy for McDonald's, though. The number of competitors gunning for the top dog have been numerous, from upstart "better burger" chains like Shake Shack to the runaway success of Chick-fil-A the last few years. Nevertheless, McDonald's has been able to roll with the punches and adapt with the times through menu changes and technology investments, maintaining its foot traffic numbers here in the United States while continuing to slowly expand overseas. With a massive lead over everyone else, McDonald's doesn't look like it will be dethroned anytime soon.

2. Starbucks: the biggest name in coffee

If McDonald's is synonymous with hamburgers, Starbucks is the name most closely tied to coffee -- at least on the premium end of the spectrum. Americans may take the caffeine chain for granted, but in many parts of the world, Starbucks' branding affords it luxury status.  

A Starbucks frappuccino topped with whipped cream.

Image source: Starbucks.

The coffee juggernaut isn't a success everywhere. There are places like Italy, where consumers turn their noses up at Starbucks and the chain has just one store selling coffee. Still, today's cafe culture here and abroad owes a lot to Starbucks. With over 30,000 stores open, the company has uniquely maintained its owner-operator model, tightly controlling the experience for consistency and keeping its energetic and focused upscale coffee shop vibe. It has also driven sales through technology, leading the way with mobile ordering to digital payments via its app and rewards program.  

However, with great success comes unwanted attention, and Starbucks has also stirred up competition to its relentless growth overseas. In China -- Starbucks' most important growth market -- a number of coffee start-ups have arisen over the last few years looking to capitalize on the country's emerging coffee-drinking habit. Luckin Coffee is attracting hundreds of millions of dollars in sales after starting up just a couple of years ago. This is sparking the coffee-selling ambitions of other chains in the world's most populous country, including the largest restaurant operator there, Yum China. More on that below.  

But Starbucks has brand power and momentum on its side. It may be a huge enterprise today, but it's still a growth company as it continues to open new stores, especially in Asia. It, too, is likely to stay on top of its industry for a long time.

3. Yum! Brands: the multi-restaurant concept at its best

By store count alone, Yum! Brands reigns supreme. The company is the owner and licensor of Kentucky Fried Chicken (23,118 stores worldwide at the end of June 2019), Pizza Hut (18,515 stores), and Taco Bell (7,136). Operating nearly 49,000 restaurants across the globe is no easy task, but the company has nonetheless managed to steadily expand its presence.  

That has especially been the case in emerging markets like China, where Yum!'s former China unit -- now spun off as its own independent company, Yum China -- continues to aggressively expand the number of stores in that country. KFC's fried chicken has been resonating especially well in developing countries, but Pizza Hut has solid performance as well. Latin America, in particular, has been receptive to the pizza chain.  

As for Taco Bell, the fast-food Mexican-inspired fare is truly an American fixation. Nearly every location is in the U.S., but Yum! has been able to continuously grow its footprint and drive more sales to existing locations with wacky menu innovation and the development of a cult-like following. Say what you may about this fast-food juggernaut, Yum! is on top of its game.  

4. Chipotle Mexican Grill: pioneer of "fast-casual"

Once upon a time, Chipotle was a small chain backed, in part, by none other than McDonald's. When Micky D's invested in this healthier and fresher take on fast food -- since dubbed "fast-casual" -- there were just over a dozen locations. The burger chain made a serious miscalculation in selling off its stake back in 2006 when there were a few hundred Chipotles.  

That's because now Chipotle is the largest fast-casual dining stock around and has 2,523 stores at midpoint 2019. The brand is still growing, with at least 140 new locations set to be opened in 2019 alone. It hasn't been easy for Chipotle getting to this point, though. There was a rough multiyear stretch when the company was plagued with food supply chain problems and multiple reports of diners getting ill after eating at Chipotle restaurants. Sales tanked as diners stopped showing up, forcing the company to tap the brakes to deal with the growing pains.  

Since 2018, the company has made a strong comeback under CEO Brian Niccol (formerly the CEO at Taco Bell). Chipotle has rolled out its digital ordering and pickup system, introduced a rewards program, and begun introducing new menu items. To the latter point, the company doesn't have the best track record with new dishes, but this time looks like things will be different as consumers have given the new items an initially warm reception. It looks like Chipotle is on the mend and back in the lead as the leader of the fast-casual movement.  

5. Restaurant Brands: growth through merger and acquisition

The layperson knows Restaurant Brands International better as the fast-food chain Burger King. North of the border, they know it as Canada's largest restaurant chain Tim Hortons. A growing number are starting to know it as Popeyes Louisiana Kitchen -- which Restaurant Brands took over in 2017. The fast-food conglomeration had just over 26,000 stores at the end of the 2019 second quarter, with Burger King outlets making up about 70% of the total.  

That's a lot of real estate, and it's one of the reasons Restaurant Brands is one of the largest food prep service stocks there is. It would be a lot bigger, though, if not for its thin location traffic figures -- especially compared with the top dogs in the industry. The average Burger King store did $1.36 million in sales in 2018, according to Restaurant Business' annual study. That's about half of what an average McDonald's did in sales.

The lower sales averages have not kept Burger King and its fast-food cohorts from continuing to churn out steady expansion via new store openings, especially overseas. Some menu tweaks have also helped, especially at Popeyes, where a recently released fried chicken sandwich has been hailed as the first true contender to challenge the seemingly unstoppable Chick-fil-A. While Burger King has been advancing, its performance trails some of the other fast-food chains out there, and its near-constant trolling of McDonald's would indicate this restaurant stock is still just second best.

6. Yum China: KFC and Pizza Hut across the Pacific

As alluded to earlier, we have finally arrived at the only stock in the restaurant top 10 that isn't a U.S. company -- at least, not exactly a U.S. company. Yum China was spun off from Yum! Brands in 2016 to give it the freedom to operate independently in its unique market, and the company maintains the rights to be the exclusive licensee of KFC, Pizza Hut, and Taco Bell in China. As the licensor, Yum! still counts Yum China's locations in its results, but by itself, Yum China was operating 8,751 locations at the end of June 2019.  

KFC, in particular, is a big hit in China, with nearly 6,200 outlets serving up fried chicken with a Chinese twist. Pizza Hut has been more of a hit-and-miss proposition, and management has continuously been working on a fix with constant menu trials and new store finishes to give the pizza chain a classy feel. Taco Bell is also a non-factor with just three shops in Shanghai at this point.  

However, even if KFC remains as the only really popular brand in China under Yum's control, that could be enough. The company has been expanding fast and sees the potential for 20,000 total locations in the country at some as-yet-unspecified point down the road. Moving beyond the current three Yum! restaurant options, Yum China is also trying to capitalize on the nascent coffee drinking demographic. It recently launched its stand-alone brand COFFii & JOY to try to ride Starbucks' coattails. Adding to the home-grown assets, the company also recently took a controlling interest in the Chinese simmer pot restaurant Huang Ji Huang, which has over 640 locations. Yum China may have started with American roots, but this dining company is turning into a real powerhouse in its own right.

A table set with various dishes of food. Hands toasting with glasses of wine are above the table.

Image source: Getty Images.

7. Darden Restaurants: the largest casual diner

Darden is another multirestaurant brand operator, best known for The Olive Garden, LongHorn Steakhouse, and its more recent addition, Cheddar's Scratch Kitchen. It's an amalgamation of casual sit-down service brands, and as such the company is a mixed bag of results. The two marquee names have been solid performers for years, while some of the smaller chains -- Cheddar's in particular -- have been a serious drag on overall financial reports.  

Even still, Darden and its stable of 1,793 restaurants (at the end of the last report in August 2019) have served investors well, and Olive Garden's focus on value has been a winning strategy that looks likely to keep rolling. In a hyper-competitive segment of the industry, Darden has managed to keep Olive Garden and LongHorn's foot traffic stable and has driven profits higher by managing its mix of menu items.  

This isn't the most exciting of restaurant stocks, and it would certainly be more appetizing if the $780 million Cheddar's acquisition from 2017 turned things around, but Darden is nevertheless a solid slow-and-steady addition to the list of largest restaurant stocks out there.

8. Domino's Pizza: a restaurant that's also a tech company?

Domino's, the world's largest pizza chain, has a whole other slant to it. The company has always been known for its delivery services, a niche that it dominated for years. But consumer demand for increased convenience has pushed all sorts of new competition into the space. Third-party delivery services like Uber Eats and GrubHub have made it easier for restaurants to get their food to where the consumer is, an that's turned delivery into a slugfest.  

Domino's response has been two-fold: "fortressing" and technology. As for fortressing, that's management's term for opening new stores in existing markets, getting its food incrementally closer to the consumer to aid in speedier delivery and convenient pickup. With more than 16,000 stores at the end of Q2 2019 -- including 6,000 in the U.S. -- fortressing has meant Domino's is sometimes its own biggest competition, as new store openings steal sales from existing ones. It hasn't been all bad, though, as overall foot traffic has remained positive thus far.  

The other half of the equation has been technology, with Domino's online ordering and rewards app taking center stage. Supplementing the long-term growth strategy have been investments into new tech and delivery methods, like a pilot program with self-driving delivery startup Nuro it is testing in Texas. This pizzeria is by no means a technology outfit, but it is one of the more aggressive adopters of new digital capabilities. In spite of lots of new delivery entrants, the strategy has been paying off for Domino's and looks like it will continue to do so as the company stays a step ahead of the competition.  

9. Dunkin' Brands: the coffee, donuts, and ice cream underdog

With Starbucks in a commanding lead in the coffee department, it's easy to overlook Dunkin' Donuts and Baskin Robbins ice cream, which together are operated by parent company Dunkin' Brands. The coffee, donuts, and ice cream trifecta is no slouch, with 21,029 total global locations in Q2 2019. Where Starbucks has excelled like no one else as an owner-operator of stores, Dunkin' offers a franchising model as a counterpoint.  

It hasn't been as lucrative as its much larger rival, but Dunkin' has been a slow-and-steady winner for a long while. The strategy has been to rely on its franchisee relationships to open up new stores at home and abroad. And, while foot traffic figures have been up and down, the new locations have largely been greeted with enthusiasm wherever they go.  

More recently, Dunkin' Donuts has been promoting its espresso drinks to drive better menu item mix, which in turn has boosted royalties it earns from sales at franchises. This is another concept that isn't the most exciting around, but it's a tried-and-true operating model that has continued to grow the bottom line at a modest, positive rate.  

10. Wendy's: outgrowing better-burger marketing

Wendy's is another classic American burger chain. While it trails its larger rivals in footprint (it had just over 6,700 stores at the midpoint of 2019), it does beat out Burger King for per-store activity. According to Restaurant Business, Wendy's U.S. locations averaged $1.62 million in annual sales in 2018 compared to Burger King's $1.36 million average.  

The chain has been all about making up ground against McDonald's of late. Fresh, square-shaped beef patties have always been the hallmark of Wendy's marketing, but the chain has been making a push into chicken the last couple of years -- including its 2 million spicy nuggets giveaway over the summer of 2019 to celebrate the item's reintroduction. Wendy's is also taking another stab at the high-profit -- but equally crowded and competitive -- breakfast segment starting in 2020.

It's a high-risk, high-reward proposition, and one that could crash (like it has before) or lead Wendy's higher in the years to come. Either way, at least the core lunch and dinner burger menus are solid and have helped the chain break into the top stock spot thus far, even though the burger war is a fierce one. 

An industry in flux

And there you have it, the 10 largest restaurant stocks. These are brands that caught on to a winning dining concept with staying power and have continued to grow despite the industry's competitive landscape being as crowded as ever. 

But changes are brewing. It used to be that restaurants duked it out over value and convenience. That gave way to healthier options (remember the Subway discussion above?), which eventually gave rise to the fast-casual trend. Now things are trending back to convenience, with digital ordering and payment as well as order pickup and delivery at the forefront of the battle.

All of the brands referenced above are in on the game to some extent to keep up with consumer demands. But the best-of-the-best will lead the pack with innovation -- both in menu selection and when fulfilling diners' requests. 

At the end of the day, though, while an occasional upstart makes some serious waves, the cutthroat restaurant industry is a story of the biggest names maintaining their commanding lead. When investing in the space, this is a good place to get started.