The next challenge is market saturation in the North American market. There is a fast food restaurant in almost every town, if not several. With so many competitors with similar products (burgers, chicken sandwiches, and fries), it is no surprise that fast food restaurants are also losing market share to fast casual- a relative newcomer in the restaurant space.
Wendy’s operates 6,500 restaurants in the U.S. and 27 countries and U.S. territories worldwide. Burger King operates 12,600 locations worldwide, and McDonald’s Corporation (NYSE:MCD) has 34,000 locations. Panera Bread Company owns and franchises 1,673 bakery-cafes as of March 26, 2013. Chipotle Mexican Grill, Inc. (NYSE:CMG) operates 1,458 stores nationwide.
Are “Fast Casual Restaurants” the Way to Go for Investors Instead of Fast Food?
Without question, fast casual restaurants are outperforming fast food restaurants. In the same first quarter that the fast food franchises were suffering, Panera Bread saw a 17% net income increase, up to $41 million. Bakery revenue increased 12%, while franchise royalties and fees only increased 6% (as compared to Burger King’s increased franchise revenue of 19%). Same store sales were 3%, which was lower than analysts’ expectations of 4-5%.
Chipotle’s first quarter earnings reported a revenue increase of 13.4% to $726.8 million. And net income increased 22% to $76.6 million, or $2.45 per share. (Chipotle Mexican Grill, Inc. (NYSE:CMG) is not a franchise.) There was only a 1% increase in same store sales.
It may be time to consider that good old reliable McDonald’s Corporation (NYSE:MCD) has reached its peak. In this changing market can McDonald’s go much higher? It isn’t time to sell- the stock has held strong, and the dividend continues to produce and reward stockholders. But it may not be wise to further invest in it for the future. With prices so high, American interest in fast food so low, and lack of sales in Asia and Europe, there may just not be room to grow for this giant. Look for a flat future.
As for The Wendy’s Co (NASDAQ:WEN) and its new endeavor to be more like Panera Bread Co (NASDAQ:PNRA), there may be more of a future there. The company will have a few expensive quarters ahead as it spends money on remodels, but after the labor is done, it will be well-positioned against its new fast-casual competition. The stock is still cheap and inexpensive and has room to grow.
From the investor’s point of view, and the hungry American’s point of view, the restaurant of choice is in the fast casual market. Options like Panera and Chipotle offer a more hopeful future for a continued strong upward climb.
And for investors looking to spend the $1.2 million-2.2 million it takes to buy a Burger King Worldwide Inc (NYSE:BKW) franchise, stop and look at where Burger King is making its money before you invest. And maybe consider purchasing a Panera Bread Co (NASDAQ:PNRA) franchise instead, for the low, low price of $1 million-1.6 million, and positive same-store sales.
The article Did Burger King Really Outperform McDonald’s and Wendy’s? originally appeared on Fool.com and is written by Erin McBride.
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