The face of the quick-serve food industry is rapidly changing, brought on by the advent not only of new culinary dishes, but also the way in which companies create them, serve them, and ultimately profit from them. From fast-food to fast-casual, the dining experience will not be the same.
We asked three Motley Fool contributors for their thoughts on significant trends occurring in fast-food restaurants that are having an outsized impact on how the industry is changing. In delving into that topic, they came up with three restaurant stocks that have completely altered the landscape: Chipotle Mexican Grill (CMG 1.42%), McDonald's (MCD 2.23%), and Sonic (SONC).
Whether it's reaching back into their history or devising new ways to solve current problems, these three innovations have changed the rules of the game. Let's take a closer look at why these Fools think so.
Andres Cardenal (Chipotle): Chipotle Mexican Grill brought many tasty innovations to the fast-food table, and the company has achieved explosive success over the last decade. While menu and service quality are undeniably important factors, its unique people culture is one of Chipotle's most determinant innovations.
Chipotle pays better salaries than other fast-food companies, and the company is famously known for its intensive training and professional development opportunities. In the last year alone, Chipotle promoted more than 10,500 employees who started as crew into management positions. More than 78% of the company's restaurateurs started as crew, many of them having never even worked in a restaurant before.
In the words of Co-CEO Montgomery Moran during Chipotle's latest conference call.
By hiring only top-performing employees and developing them to be at their very best, we're able to do things in our restaurants that other restaurant companies simply can't do. Not only is our team running extraordinary restaurants, preparing delicious food using classic cooking techniques and providing exceptional customer service, we're also elevating the people around them. This approach to running our restaurants is what enables us to create such an extraordinary dining experience and to deliver such strong unit economics.
Chipotle is firing on all cylinders, and this is not just because of its tasty tacos and burritos made with fresh ingredients. The company's true secret sauce is its unique people culture and human resources policy.
Rich Duprey (McDonald's): While McDonald's is suffering through a particularly harsh decline in monthly same-store sales that's approaching nearly two years, it's often forgotten that it was the burger chain itself that virtually created the fast-food industry and ultimately set in motion the forces that are now working against it.
The first McDonald's restaurant opened in 1940, but it wasn't until 1967 that franchisee Jim Delligatti invented the Big Mac, and it didn't go national until the following year.
The one that started it all: the Big Mac is McDonald's signature burger and is the inspiration for copycat burgers the world over. Photo: pointnshoot, Flickr.
Since then, competitors like traditional rivals Burger King and Wendy's, as well as the current crop of fast-casual burger chains like The Habit and Shake Shack, have been trying to emulate the Big Mac's phenomenal success by building better burgers.
It's true they have siphoned off a lot of McDonald's customers lately, but the Big Mac remains a pop culture icon that's spawned not only imitations of the classic sandwich (think, the Big King from Burger King), but also an ad jingle that customers of a certain age can't possibly forget ("two all beef patties, special sauce, lettuce cheese, pickles, onions on a sesame-seed bun").
And what other hamburger has its own currency index? The Economist created the Big Mac Index in 1986 as a humorous means of evaluating currency exchange based on the cost of a hamburger.
Of course, McDonald's has also been criticized for its contribution to the obesity crisis in the U.S., perhaps best epitomized by the movie Supersize Me, where documentarian Morgan Spurlock ate nothing but McDonald's food, adding up to a large calorie count, three times a day for a month (the equivalent of consuming more than nine Big Macs a day) and gained over 24 pounds.
Even though McDonald's is down now, it's not out, and a turnaround of its fortunes may very well lie with getting back to basics that make the Big Mac and low-priced food central to its menu once more.
Dan Kline (Sonic): Croissant-wrapped hot dogs and cold slush drinks with bits of candy in them may not sound like brilliant ideas, but Sonic has kept its business moving forward by steadily innovating its menu. While a competitor like McDonald's seemd to either just offer new takes on a fancier version of its traditional burger or huge failures likes its ill-conceived Mighty Wings, "America's Drive-In" has managed to create new offerings that are innovative as well as appealing.
Image source: ir.sonicdrivein.com
These new menu items are being created at the company's Culinary Innovation Center, a "state-of-the-art venue where SONIC's culinary experts will test ideas, equipment, recipes and products to create the delicious and distinct drinks, snacks, entrees, and desserts customers love and expect," the company said in a press release. Test kitchens are not a new concept, but Sonic's, which launched in late 2014 has been particularly successful.
The Center includes a "culinary kitchen with the newest tools and equipment necessary to facilitate creative development and new product ideation;" a replicated Sonic kitchen to test new products and equipment in a real-world scenario; and a 40-seat dining room for presentations, meetings, and consumer research. There's also a six-seat bar area for collaboration and drink innovation as well as installed cameras allowing chefs to broadcast training, food demos, and interviews.
At only 3,500 locations, Sonic is showing a commitment to the idea of having to continually innovate to keep its menu fresh. The chain clearly understands that adding some hot sauce or slapping on a different cheese to a burger may not be enough to drive sales. Instead, it's pushing its food forward while competitors are being left behind.
