Fast food is ubiquitous. At different points in your life, everyone eats at these places at some point, be it after Little League practice, during college, on a road trip, or out with the grandkids. It is a common denominator with quick and easy options that suit a variety of palates and appetites. Because of this versatility, fast food companies can also make strong investments – as long as you understand how they work.
The Pros and Cons of Investing in Fast Food Companies
Running a successful fast-food business requires more than serving decent food at low prices from the right locations.
In most cases, the biggest profit driver for fast food companies is not the food itself. It’s franchise fees, royalties, and rent. As such, the most successful fast food chains are not necessarily the ones with the best food. They are the ones that are most successful at attracting franchisees and helping them remain in business.
Innovation is another consideration. While the food choices never change all that much, the way people do things does. Adding features like self-service kiosks, attractive décor, and home delivery helps keep fast-food customers coming back.
Finally, remember that most fast food brands participate in international markets that are not nearly as saturated in fast food as the United States. That fact opens the door for exponential growth if the company is able to capture the attentions and taste of its foreign hosts.
Is McDonald’s Stock Worth Buying?
McDonald’s (NYSE: MCD) is practically synonymous with fast food.
The Golden Arches attracts 19% of the fast food market share globally (in comparison, Burger King comes in at just 5%) – and its business is largely recession-proof.
When money is tight, people still eat at McDonald’s. It’s not surprising why as they have something for everyone. From breakfast sandwiches and specialty coffee drinks to cheeseburgers and salads, McDonald’s has made a business out of appealing to everyone.
According to McDonald’s annual report, the thing that keeps its customers coming back is the consistency of experience, value for money, and brand relevance/recognition.
To maintain those advantages, McDonald’s (NYSE: MCD) has a keen focus on pricing products suitably for its locations. The company is choosing a more agile model that lets its pricing strategies evolve quickly and adapt readily to changing customer preferences.
Technology is also a big component too. The right advancements, like self-service kiosks, streamline the ordering process and reduce overhead while helping customers enjoy the convenience and novelty of a more digital experience.
However, McDonald’s (NYSE: MCD) is not pursuing technology for technology’s sake alone. As the company rolls out these advancements, it is also working on its service model so that its relationship with customers is enhanced by the technology not supplanted by it.
Should You Invest in Burger King Stock?
Burger King – owned by Restaurant Brands International (NYSE: QSR) has been hot on McDonald’s trail for a while.
Its strategy is simple: trim the so-called “fat” in operations so it can offer lower prices and create more direct challenges to its rival McDonalds (NYSE: MCD).
Since 2014, Burger King has launched new products with direct parallels to popular choices at McDonald’s, including the Big King (vs Big Mac) and the BBQ Rib (vs McRib).
Burger King has also been upping its coffee game and providing more of a direct challenge to the McCafe brand.
Burger King is also more diversified. The fast-food brand is currently owned by Restaurant Brands International (NYSE: QSR), the company behind Tim Hortons and Popeyes. All told, QSR owns or franchises more than 24,000 locations worldwide and 16,767 of them are Burger King restaurants.
Going forward, QSR is using several different strategies to grow its market share, both for BK and its other brands.
The company is looking at creating joint ventures and franchise developments to help improve international growth and expansion into certain areas.
New product development is also at the forefront as QSR looks to attract customers to its brands during the whole day. The company is doing this is through the quality of the coffee it sells, the variety of products available, and the operating standards at each location.
Burger King does face some big challenges going forward.
Aside from the risk of changing consumer preferences, the company also has to compete against McDonald’s, which is much larger. The company’s size lets it do things that Burger King cannot, such as leverage economies of scale.
QSR doesn’t have the same purchasing power as McDonald’s and its brands do not have the same recognition, especially in foreign markets.
The company is also burdened by a ton of debt – over $12 billion according to its last annual report. With leverage this substantial, QSR may not have the ability to borrow much more in the event of an opportunity and it will have more difficulty weathering a storm if sales dry up or interest rates increase meaningfully.
McDonalds Vs Burger King Stock Summary
Aside from any “battle of the burger” talk, the two fast-food chains have similar business models. They are each focused on attracting franchisees.
For investors, the real difference between the two is versatility. By choosing to invest in a more diversified brand, your interests are automatically more hedged than if you focused on a single brand – but QSR’s high level of indebtedness is a major limiting factor.
McDonald’s offers more versatility under a single umbrella and better financial health. However, the best part about deciding whether to invest in McDonald’s or Burger King is that you don’t have to choose. This isn’t a lunch choice; it’s your investment portfolio.
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