In "A Brief History of American Prosperity," published in City Journal, contributing editor and French intellectual Guy Sorman attributes the ascension of the United States as an economic superpower in part to the "forces for stability" provided by companies such as McDonald's (NYSE: MCD) and Coca-Cola (NYSE: KO). Not only are the products seemingly everywhere, but also the quality is of a uniformly consistent standard, which is a comfort to consumers away from home. Companies that are part of the success of the "fast-food nation" of the United States will prosper even more globally due to three major factors.
More people means more customers
The world's population is expected to increase from 7 billion to 9 billion by 2046. There are well over 10 fast-food transactions annually per person. . The number of outlets will continue to increase to serve the growing populace, with Burger King Worldwide (NYSE: BKW) moving to open 1,000 new restaurants in China, and Yum! Brands (NYSE: YUM) planning to launch 150 new restaurants in Africa and 600 in China annually for the next five years. Overall, by 2014 the global fast-food market could reach $239.7 billion in value, an increase of 19.5% since 2009.
Consumers with more money eat out more
A report from McKinsey Global Institute, the research arm of McKinsey & Co., states that 1 billion more people will enter the global consumer class by 2025. Another report issued by McKinsey projects that spending by the global consumer class will rise from $38 trillion to $64 trillion by 2025. Studies show that as consumers move up to the middle class, they spend almost 20% more to eat out at fast-food and other restaurants in the United States.
Members of the fast-food nation will be there to refresh and nourish the increasing numbers of consumers with more cash. Coca-Cola and/or PepsiCo (NYSE: PEP) are in every country except for Cuba and North Korea. McDonald's has operations in 119 countries. Yum! Brands has Pizza Huts, KFCs, Taco Bells, and other units in more than 120 nations and territories. Wendy's (NASDAQ: WEN) has facilities in almost 30 countries.
Custom menus maximize profits
When a Burger King, McDonald's, Wendy's, or KFC operates in another country, it doesn't offer the same menu as those in the United States. For example, McDonald's in Asia serves Green Tea Ice Cream Sundaes, Seaweed Seasoned Fries, and Samurai Pork Burger, among other locally inspired foods. Along with chicken at a KFC in China, diners will also find beef, shrimp, and pork items on the menu. Catering to local tastes serves to increase profits, as consumers order what they know. While Sorman refers to this as the "forces for stability," the food industry knows it as "product localization." It is the basic concept, according to Sorman, that a nation's consumers "[tend to] share a taste for the same products and services."
What should comfort the Foolish investor
Coca-Cola, PepsiCo, Yum! Brands, and McDonald's are all excellent long-term investments due to the brand name and business model of each. For these companies, it is prudent to buy on the dip to enhance your long-term total return with a higher dividend from the lower stock price. As each provides a growing dividend along with the solid growth, dividend reinvestment programs should be considered to build a long-term position.
For fast-food restaurants, Foolish investors should monitor the same-store sales growth. While it can vary depending on factors such as new menu items, 3%-4% is strong same-store sales growth for an established chain like Wendy's, McDonald's, Burger King, or Yum! Brands.
Jonathan Yates has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's and PepsiCo. Motley Fool newsletter services recommend The Coca-Cola Company, McDonald's, and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.