We examine three QSR (quick-service restaurant) leaders in America’s popular and ever-growing fast food industry
The quick-service restaurant industry in the United States produced $273 billion in revenue in 2019, an increase of nearly $90 billion over the past decade, and is expected to surpass $282 billion this year. Americans love fast food; it’s inexpensive, tasty, and most importantly, fast. This is how three top companies are doing.
1. McDonald’s Corporation
McDonald’s (NYSE: MCD) is a universally-recognized company that was founded in 1940 by brothers Richard and Maurice McDonald. Ray Kroc purchased it from the brothers in 1961. The restaurant has close to 14,000 locations in the United States.
Although the company boasts of hundreds of billions of hamburger sales, it makes its money primarily through real estate. In 1956, Kroc established the Franchise Realty Corporation to lease and purchase land for franchises. The company would charge markups of up to 40% on lease and sublease costs to franchisees. In 2019, McDonald’s revenue was $21 billion; over a third of it ($7.5 billion) consisted of rent. With its real estate value exceeding $30 billion dollars, it also benefits from commercial property tax breaks.
Collecting steady rent insulates the company from sales fluctuations in the fast-food industry. As the top QSR chain in the United States, McDonald’s has a few competitive advantages over other companies. It spent $447 million on advertising in 2019. It also offers quality products at lower prices and evolves with consumer tastes and trends (lower-calorie items, plant-based meat sandwiches). In the future, McDonald’s plans on having more kiosks for their restaurants (which can process more orders than traditional cashiers) as well as partnering with delivery services as their delivery business reached $4 billion in 2019.
2. Yum! Brands, Inc.
Yum! (NYSE: YUM) primarily operates KFC, Pizza Hut, and Taco Bell. The company was created in 1997 as Tricon Global Restaurants Inc., from PepsiCo (NASDAQ: PEP) and changed its name to reflect its ticker symbol in 2002. KFC (4,200 locations) offers chicken products, Pizza Hut (7,500 stores) sells pizza, and Taco Bell (7000 restaurants) sells Mexican-style dishes like tacos and burritos.
Yum!’s 2019 (global) revenue breakdown is as follows:
In recent news, Taco Bell refused to partner with Beyond Meat (NASDAQ: BYND) and Impossible Foods, opting instead to keep its ingredients pure and healthy and offering an extensive vegetarian menu.
On January 1, 2020, David Gibbs assumed the role of CEO at Yum! The company is rapidly developing online ordering for its three brands and delivery via Grubhub (which Yum! purchased in 2018 for $200 million). Taco Bell plans on having digital kiosks in 6,500 locations by this year’s end. These kiosks will have a special vegetarian menu option for convenience.
More recently, Yum! is due to buy Habit Restaurants Inc. (NASDAQ: HABT) for $375 million this year. Additionally, Yum! purchased leadership development training program Heartstyles, which it plans to implement in all its locations in the near future, in an effort to strengthen its “people-first” culture.
3. Chipotle Mexican Grill, Inc.
Chipotle (NYSE: CMG) is a Tex-Mex restaurant chain that was founded by Steve Ells in 1993. It has had spectacular growth in the last decade, with its revenue surging 204.25% (from $1.836 billion in 2010 to $5.586 billion in 2019). The company is known for its fresh food (no microwaves or freezers) and reasonable prices. With 2,585 locations in the United States, the company has not been without setbacks.
In 2015, Chipotle had a series of foodborne illnesses attributed to their restaurants. As a result, average per-store sales that year declined by 23% from $2.42 million to $1.87 million. In January of this year, the company was fined $1.4 million for violating child labor laws in Massachusetts.
Chipotle is digital-friendly with an ordering app to help customers avoid long waits. In fact, this app will help with their new ‘Chipotlanes’ drive-thru service, which users can use to pick up orders made via the tool. Customers pay in advance and schedule a pickup time making the whole transaction last 12 seconds, according to CEO Brian Niccol. This will help the company process more orders.
Chipotle also has delivery, partnering with DoorDash, to offer free service on orders over $10. There is growth in Chipotle’s future as it has yet to expand to international markets (currently only 37 restaurants outside of the US). The QSR industry is huge in the United States, with nearly 200,000 establishments; the sector is a revenue powerhouse with the potential to feed hungry investors for some time to come.
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