If you've been wondering why so many companies have gone public in the past year via so-called "blank check" or special purpose acquisition companies (SPAC), look no further than former Facebook executive Chamath Palihapitiya.
The founder of venture capital firm Social Capital, Palihapitiya sought to fix what he felt was broken with the traditional banker-led initial public offering system by taking power away from financiers and giving it to company founders. In so doing, he turned SPACs into the IPO 2.0 for today's generation. Palihapitiya prefers technology and other "big ideas" companies. Through his Social Capital Hedosophia Holdings SPACs, he's taken Virgin Galactic, Opendoor Technologies, and Clover Health public, and more recently announced fintech SoFi would be the next company he'd take public through his preferred vehicle.
There's definitely more than one way to look at this approach. But you can see the wisdom of empowering executives with an owner mindset in a company that Palihapitiya will probably never take public, as much as I wish he or someone else would: Chick-fil-A.
Ruffling the industry's feathers
Even if you haven't eaten at a Chick-fil-A restaurant, you've undoubtedly heard the superlatives about its chicken sandwich from its base of loyal customers, along with the unusual politeness of its employees.
The company instills certain basic tenets into how it operates, many of which spring from the family owned restaurant's Christian beliefs. It's why you also won't find a Chick-fil-A open on a Sunday, to the dismay of its many fans. Yet by having a fairly limited menu -- basically chicken, fries, and drinks (and the waffle fries are its most-ordered menu item) -- the restaurant can focus on doing what it knows and doing it well.
That's helped Chick-fil-A leapfrog over the competition like Yum! Brands' Taco Bell and Subway to become the third-largest restaurant chain in the country by sales, even though it has fewer locations than many of its competitors. Its success helped launch the chicken sandwich wars that have taken over the fast food industry.
The popularity of Chick-fil-A's sandwich, along with changing consumer preferences making chicken a healthy, go-to protein, encouraged Restaurant Brands International's Popeyes Louisiana Kitchen to introduce its own fried chicken sandwich, which became an instant hit and something of a cultural phenomenon.
Others chains came out with their own versions, though none has caught on like Chick-fil-A or Popeyes, but McDonald's is the latest entrant into the field to try and ride the coattails of the chicken sandwich trend. It will be introducing three variants next month.
Ruling the roost
Chick-fil-A's sales have tripled over the past decade and data from Technomic estimates revenue hit $11.3 billion in 2019, up 13% from the year before. With some 2,470 restaurants in operation, that works out to average revenue per restaurant of almost $4.6 million.
In comparison, McDonald's had $40 billion in annual sales that year from 13,800 restaurants, or an average revenue per restaurant of $2.9 million. Taco Bell had similar total sales as Chick-fil-A, but with nearly three times the number of restaurants, its revenue per restaurant average came in at $1.6 million.
In fact, no other national fast food restaurant chain generates more revenue per restaurant than does Chick-fil-A.
Some analysts think it's entirely possible Chick-fil-A can grow its business to $30 billion annually, which would rank it second on the list of top chains ahead of Starbucks and leaving only McDonald's with greater annual sales.
Rarer than hen's teeth
Unfortunately, Palihapitiya likely won't be able to take Chick-fil-A public via a SPAC, or through any other vehicle. The chain's founder, S. Truett Cathy, made his children sign a contract before he died in 2014 promising to keep Chick-fil-A a privately held company (he did say they could sell it).
That's a shame, because investors don't have many good options for restaurant stocks in the current climate. The COVID-19 pandemic has limited eateries' ability to operate on a full-capacity basis, and with few opportunities for outdoor dining during winter, the malaise gripping the industry will continue to drag on performance far beyond the colder months as some may not survive the chill.
However, restaurants with a built-in takeout business, like Chick-fil-A has, will offer better opportunity and returns, and drilling down into their restaurant-level revenue and margins will provide valuable insight. Darden Restaurants (NYSE:DRI) has been a standout during the pandemic precisely because its Olive Garden chain had an established, robust takeout business in place when the crisis struck. Cracker Barrel (NASDAQ:CBRL) also weathered the storm by leaning into its catering business, modifying its Heat n' Serve Feasts that typically serve 10 people to instead feed a family of six. Off-premises sales have soared to account for 25% of total revenue, up from 9% last year.
Unless Palihapitiya decides he wants to buy Chick-fil-A outright and then take it public, investors will have to settle for simply enjoying its chicken sandwiches while dreaming about the next private business they'd like a chance to invest in.