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For American restaurant chains, the early months of the pandemic were a difficult time. But soon things changed for the better as people managed their locks by ordering their favorite foods online, leading to a boom in sales. Market leaders, including McDonald’s, Starbucks, and Chipotle Mexican Grill, are ramping up delivery, curbside pickup, and drive-thru service to fulfill orders.
The company’s resilience to severe winds like COVID-19 is a testament to the popularity of its affordable food, quick service and innovative menu. They seem ready to use their ability to adapt to changes in operating conditions and customer desires for ready-to-eat meals. These factors enable companies to perform better than their ‘formal’ counterparts who depend on diners.
The customer is King
Come 2023, the scenario is different – the reopening of the market has brought customers back to restaurants and the home delivery boom caused by the virus has subsided. It will be interesting to analyze where the industry is headed this year as it faces new challenges such as tightening consumer spending amid high inflation and rising interest rates.
The good thing about the multichannel shift is that restaurant operators can now use their transformed delivery facilities as well as traditional dining services to better serve their customers. The economic downturn is unlikely to affect their business in the future, as competitive prices and fast food culture are on people’s minds.
The convenience brought out by on-the-go snacks and ready meals cannot be denied to almost all categories of people, who will continue to visit fast food restaurants regardless of their financial well-being. With market conditions increasingly conducive to franchise business models, restaurant operators can now expand into new markets with ease.
Giant Burger
McDonald’s Corporation (NYSE: MCD ), the largest US snack chain by market capitalization, has maintained stable sales and earnings almost every quarter since the start of the pandemic, despite closing some restaurants, particularly in Russia. Last year, comparable sales bounced back from an early slump, with sales rising at both company-operated and franchise restaurants.
After peaking a few months ago, MCD is now trading at a premium. The company is investing heavily in renovating its store network and adding new units, which will lead to sales growth. This positive backdrop will allow the company to continue to deliver value to shareholders, making the stock an attractive bet.
Perfect Brew
Coffee chain Starbucks Corporation (NASDAQ: SBUX ) continues to maintain its dominance in the highly competitive ready-to-drink market. The company experienced problems after the outbreak of the pandemic, but the management took aggressive steps to align the business with new trends – like pushing more products through retail stores and e-commerce platforms like Amazon, in order to reach customers who may not visit the outlet.
In an effort to build on the success of its partnership with Nestle, which helped expand its non-core Channel Development business, the company is increasing its ties to new products and markets.. It appears to be able to beat inflation by raising prices and protecting margins but cannot affect sales volume.
After entering 2023 on a high note, Starbucks shares pared some of its gains and are now trading below $100. The price drop can be seen as a good entry point, given the coffee giant’s promising growth prospects. Going forward, reopening in China, one of the company’s key markets, will increase sales and margin growth. So, SBUX now has everything it needs to create strong shareholder value.
Mexican cuisine
Chipotle Mexican Grill (NYSE: CMG) is a fast-casual restaurant chain specializing in made-to-order bowls, tacos, and burritos. After successfully overcoming the pandemic, the company raised prices and was able to increase sales and profits without affecting demand, supported by very loyal customers. Over the past five years, it has delivered stronger-than-expected profits in nearly every quarter, while sales have continued to grow.
Lately, Chipotle has been adding new units to its restaurant chain at a rapid pace. That has helped the company double sales in recent quarters, a trend that is expected to continue as management plans to open up to 285 restaurants this year. In the fourth quarter, adjusted earnings rose 50%. In FY22, operating margin increased to 13.4%, indicating that Chipotle is firing on all cylinders.
CMG is one of the most expensive fast food stocks, with a 52-week moving average of about $1,500. However, the current price is attractive from a long-term investment perspective as the stock is not going to get any lower anytime soon.
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