In the notoriously difficult restaurant business, a winning formula that connects with consumers can be quite lucrative. To find the best investments in this sector, look for companies that are growing briskly, yet still have plenty of room to expand.
Trade magazines like QSR (for "quick-serve restaurant") can help investors get up to speed on the fast-food sector. The magazine recently published its QSR 50, a review of the top names in the industry. Here's a look at its surprising data on some of fast food's most familiar names:
|
Company |
U.S. Systemwide Sales, 2009 |
U.S. Average Annual Sales per Unit, 2009 |
Total Units, 2009 |
|---|---|---|---|
|
McDonald's (NYSE: MCD) |
$31 billion |
$2.4 million |
13,980 |
|
Subway |
$10 billion |
$445,000 |
23,034 |
|
Burger King |
$9 billion |
$1.2 million |
7,250 |
|
Wendy's (NYSE: WEN) |
$8 billion |
$1.4 million |
5,877 |
|
Starbucks (Nasdaq: SBUX) |
$8 billion |
$952,000 |
11,128 |
|
Taco Bell |
$7 billion |
$1.2 million |
5,604 |
|
Dunkin' Donuts |
$6 billion |
$820,000 |
6,566 |
|
Pizza Hut |
$5 billion |
$786,000 |
7,566 |
|
KFC |
$5 billion |
$960,000 |
5,162 |
|
Sonic (Nasdaq: SONC) |
$4 billion |
$1.1 million |
3,544 |
Source: QSR magazine.
You're probably not surprised to find McDonald's at No. 1, ahead of burger rivals Wendy's and Burger King. But did you know that it takes in more than three times as much cash, and has roughly twice as many locations, as each of its also-rans? Most importantly, it takes in about twice as much money per store than the other two, and between two and five times as much as the other top 10 chains.
Appearances can be deceiving, though, because three of the chains on the list belong to a single company. Yum! Brands (NYSE: YUM) operates Taco Bell, Pizza Hut, and KFC. Add those three together, and you're looking at a No. 2 ranking, with more locations than McDonald's, but still only a bit more than half its revenue.
Interestingly, Subway has many more locations than McDonald's, but takes in much less money. Clearly, McDonald's is drawing more traffic. It's also drawing more revenue throughout the day, thanks to its long-standing breakfast menu. That may be why Subway and others (such as Taco Bell) are now trying to draw more dollars with breakfast fare of their own.
Which is growing faster: These companies, or our waistlines?
QSR ranked its 50 businesses by systemwide sales growth. Privately held Five Guys Burgers & Fries reached the top with a 70% increase. McDonald's and Subway, already with more than 10,000 locations, simply can't grow that briskly; each posted a roughly 4% gain. Here are some of the fastest-growing public companies on the list:
|
Company |
2009 Sales Growth |
|---|---|
|
Tim Hortons |
19% |
|
Chipotle Mexican Grill (NYSE: CMG) |
15% |
|
Panera Bread (Nasdaq: PNRA) |
7% |
Source: QSR magazine.
Chipotle is no stranger to Fools. It aims to more than triple its store count, and it's been growing its profit margins and same-store sales. Tim Hortons may not seem like a major player to Americans, but it's a giant in Canada, with an 80% share of the coffee market, decades of growth, and solid profit margins. Panera Bread made news recently by experimenting with a pay-what-you-can non-profit model, but the company has been a great profit generator in recent years, even while it expands its margins.
Of course, great growth and smart operations rarely go unnoticed. Each of these companies currently sports a P/E ratio greater 20 (or even topping 30, in Chipotle's case). If you're drooling over any of them, consider waiting for a more attractive entry point.
Growth is great, but don't discount the power of the best dividend payers.
