The fast food industry has seen a surge of growth in the past several years. The market is expected to reach $690 billion by 2022 with a CAGR of 4.2%. While the preferential shift for natural and healthy food has changed the perspectives of fast foods among today’s U.S. consumers, the market is still growing steadily thanks to the quick adoption of new technologies and higher expectations for quality and clean foods. According to the Centers for Disease Control & Prevention, nearly 36.6% of adults in the U.S. had consumed fast food from 2013–2016. The fast food industry has also registered a turnover rate of 150%, which is the highest recorded rate since 1995.
The U.S. is undeniably the leader in the fast food markets worldwide. Statista found that California accounts for the highest number of Quick Service Restaurants (QSR), while Wyoming accounts for the least. And in recent years, technological innovations and new concepts have brought countless competitors into the domestic market. But even still, big powerhouses such as McDonalds, Pizza Hut, Starbucks, etc. are all showing signs of expansive growth, branching out to international markets as well.
Key Facts
- The most common type of fast food restaurants in the U.S. are deli shops, which make up 17.6% of the market.
- McDonald’s has the highest brand value among all fast food chains in the U.S.
- There are nearly 3.78 million employees in the fast food industry.
- Currently in the United States, there are 190,649 food establishments.
- Hong Kong ranks №1 in terms of the population that visits fast food restaurants.
- Revenue for U.S. fast food service reached $256 billion in 2018.
Fast Food Stock Terms
To invest in fast food stocks, financial professionals use the following metrics:[Source]
- Comparable-Store Sales: Refers to the average sales generated by one specific retail location. The comparison is the revenue of the most recent accounting period with the revenue from the past. Investors use this metric to see how well stores have performed over time.
- Unit Growth: This term is used when investors look at the rate of new stores being opened in a given year. Store growth signifies that the franchise is making enough profits to expand into new territories.
- Profitability: A successful fast food franchise will support smooth operation flow for putting up with market-leading margins. This in turn provides sufficient returns for both restaurant owners and the overall franchise business.
- Capital Outflows: Investors need to know if the company is making good use of its profits. To ensure long-term growth, companies will need to make wise choices about allocating their capital. For example, will there be upgrades on kitchen equipment? What about integrating the latest digital technology for more convenient ordering process?
Trends to Watch
More than any other generations, Americans today are demanding a healthier and more nutritious ingredients in fast food restaurants. Deloitte conducted a study recently and found that 75% of respondents practiced healthy eating habits while 83% said fast food chains didn’t offer enough healthy options. One particular fast food chain that jumped in on this trend early on is Chipotle Mexican Grill. Headquartered in Denver, Colorado, Chipotle swayed customers by providing nutritionally dense ingredients and offering flavorful meals. Currently capitalized at $23.2 billion, Chipotle is expected to generate $5.42 billion of revenue in 2019.
Another new trend that’s picking up fast is the online food delivery service. Almost all major fast food conglomerates have this service. As more consumers are choosing to skip fast food lines and go straight into home delivery, small startups have begun to partner with big companies to help meet this demand.
Investments In the Future
Future prospect for investments in this industry is quite positive. At the top of the list is McDonald’s, as they are considered the industry leader. Investors who prefer high stability and consistent profit growth should look into this stock. Over several decades, McDonald’s has proven to be adaptable to consumer demands and has become one of the most efficient businesses in the industry thus far. Other strong candidates include large established franchises such as Yum! Brands and Domino’s Pizza. Whichever fast food stocks you choose, the industry has consistently shown a stable growth rate in the past. Consumers will always love fast food options, irrespective of economic performances. And with new technologies are adding to the mix, fast-food industry seems a safe bet for the next several quarters.
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