Why is the fast food industry so profitable
Fast Food Industry Investment Trend: The Top 5 Stocks Investors should definitely watch!
According to the latest statistical study by TDn2K, a company specializing in restaurant industry analytics, the number of restaurant visitors continues to decline. The situation is not new and was last observed in 2009/2010, right after the financial crisis. As for the causes, they are definitely different this time around. When it came to the beginning of the financial recovery in 2009/10, technological solutions such as mobile payment and ordering are currently playing an increasingly important role.
Modern society has long since arrived in the digital age and the technological shift towards mobile applications is becoming increasingly clear. Whether taxi, pizza or train tickets, all of this is increasingly being ordered and paid for online. This trend is also affecting the food and restaurant industries, which must now adapt to hold their own in the fight against mobile delivery services.
One of the top companies that would be able to do this is the world-famous fast food chain McDonalds (MCD).
The fast food giant, capitalized with around USD 126 billion, recently showed significantly better than expected quarterly results and announced a new strategic business direction with the delivery offensive, which should bring the group back on a growth path. In short, McDonalds is in the process of reinventing itself. In the last few years one has had to acknowledge that with the outdated conception one continuously loses the fight for the client against easily accessible delivery services.
And what do you do when you can't eliminate the competition? You become a supply chain yourself, especially since the group already has the appropriate infrastructure worldwide. McDonalds now wants, inter alia. accelerate the expansion of the delivery service.
Another important factor is the digitization of order and payment processes in the branch. The social trend clearly shows that people increasingly prefer the option of ordering online. The causes are obvious: you save time, it is much quieter and clearer than the decision-making process directly at the cash register and ultimately you can avoid the annoying queuing. By the end of 2017, McDonalds intends to make online ordering available in 14,000 stores across the United States. There are also 6,000 in Canada, Germany, Great Britain, France, Australia and China. The McDonalds tracking function is able to recognize when and how quickly a customer who has placed an order will arrive at the store. The kitchen staff will be notified accordingly. This means that the food should be fresh and ready to be picked up when it arrives. The waiting time will be minimized and thanks to the mobile payment service you will be able to generate a higher margin overall. The new McPick app recently clearly showed that demand is already there and is likely to continue to rise. This means that the change to a supply chain should soon begin at MCD as well.
McDonalds should have a very good chance of returning to the growth path, as the problem of falling sales should be largely resolved with the start of the delivery service. Most recently, the group was able to convince with better than expected quarterly figures. While Q1 revenue fell about 3.9% to $ 5.68 billion, it was still well above the expected $ 5.51 billion. EPS improved 14% to $ 1.47 and was also better than the expected $ 1.33. Global comparable sales increased by 4%. The operating result improved by 14%. For 2017, the consensus expects an EPS of USD 6.40. In 2018, USD 6.86 is expected. This would put the P / E18 at around 22.4.
Another group that is already benefiting from mobile ordering and payment is the retail company, which is capitalized at around USD 86.37 billion Starbucks (SBUX).
What works great in this case is the strategically smart customer loyalty policy. The Starbucks card that has been introduced proves to be a real hit. According to the latest quarterly report, the number of active Starbucks members rose about 11% year-on-year to 13.3 million. Around 36% of all Starbucks purchases in the USA are made using a Starbucks card, which can be topped up in the normal way if necessary. Transactions via mobile payment rose to 29% of the total transaction volume and the “Mobile Order and Pay” function was responsible for 8% of the total transaction volume.
In this regard, it is important that the Starbucks card binds the money on top of it and also encourages the customer to choose Starbucks more often when choosing a fast-food restaurant chain. Overall, according to the latest estimates, Starbucks customers hold a little more than USD 1 billion in the two new reward payment solutions. This fact could be very interesting, because the group is obviously tending to expand its product range and is now testing the offer of a lunch.
In this case, too, the problem was recognized correctly. While huge queues form in front of the Starbucks branches in the morning hours, they remain largely empty in the afternoon. To counteract this phenomenon, Starbucks decided to offer a lunch menu. This should largely solve the problem of the uneven flow of customers and ensure additional sales and a consistently high workforce. To determine the flavor and effectiveness of this solution, Starbucks is already testing this innovation in 100 stores in Chicago. If the concept turns out to be profitable, the global introduction can be expected here.
Most recently, the group was able to come up with solid quarterly figures. Q2 sales increased 6% year over year to $ 5.29 billion (consensus: $ 5.41 billion). EPS of $ 0.45 was exactly on par with the consensus estimate. Global Comparable Store Sales (CSS) rose by 3%. China, however, showed the highest growth. Here the CSS rose by 7%. For 2017, the consensus expects an EPS of USD 2.10. In 2018, USD 2.42 is expected. The KGVe18 would thus be around 24. The technical chart situation is also interesting here: The value is obviously heading for a big picture breakout. ?
The group capitalized at around USD 10.21 billion Dominos pizza (DPZ) is quite simply the sector leader! The stock has been on a steady upward trend for several years in a row and continues to move north. What's interesting here is the fact that Dominos Pizza wants to revolutionize the pizza industry with robots.
It is already considered certain that robot technology will revolutionize many industries. They will also occupy an important place in the food sector. In a few years, manufacturers should be able to offer fast-working cooking robots. These are particularly interesting for fast food restaurants because the manufacturing processes for a burger or pizza are always similar. As a waiter, the use of robotized solutions would also be conceivable. This could reduce labor costs.
As far as Dominos Pizza is concerned, the use of robots is beginning to be considered. First of all, they are used for delivery. To do this, they cooperate with the Starship company. Its robots can reach speeds of up to 16 km / h and operate within a radius of 5 km. The battery-operated devices drive on the sidewalk. The pizza is stowed in the interior. In total, you have the option of storing up to 8 orders in the robot, which can only be taken out via a PIN query. And the GPS function reveals where the mechanical supplier is at any given time. This technology can potentially also be used in large cities with constant congestion problems.
As far as the fundamental development of dominoes is concerned, everything is still in the green here. Q1 revenue increased 15.8% to $ 624.2 million (consensus: $ 615.48 million). The EPS of USD 1.26 was well above the expected USD 1.16. Same store sales increased by 14%. Growth was recorded both in the US and internationally. For 2017, the consensus expects an EPS of USD 5.42. In 2018, earnings are expected to increase to USD 6.38 per share. This would put the P / E18 at around 33.3. Consensus expectations could increase through the use of robots, because the monthly costs can be reduced and their use increases brand awareness among consumers.
The group capitalized at around USD 2.8 billion Dave & Buster's Entertainment (PLAY) is one of the promising growth stocks and has apparently managed to find its niche in the fast food business.
The company has made a name for itself through an innovative concept. The food is combined with entertainment offers such as slot machines or broadcasts of sports events. The main target here is a younger audience between the ages of 21 and 39. The chain now includes 92 restaurants and is to be expanded to around 210 in the future. Various gift cards, numerous eat / drink / play offers as well as the party and event service are an integral part of the company's product range and are becoming increasingly popular. The group has thus positioned itself very successfully in an extremely lucrative fast food niche, which is also regularly reflected in the quarterly figures.
In the past 1st quarter, too, results were better than expected, with revenues increasing by 16.1% to USD 304.1 million (consensus: USD 299.85 million) compared to the previous year. EPS of $ 0.94 was also above the expected $ 0.81. At the same time, a US $ 100 million share buyback program was announced.
The communicated FY17 forecast envisages a 2–3% growth to 1.16–1.17 billion USD (consensus: 1.17 billion USD) and the opening of a further 12 restaurants (+ 13% expansion). In the long-term perspective, store growth is assumed to be around 10% and a target of 200+ restaurants in the USA and Canada. For 2017, the consensus expects an EPS in the range of USD 2.06. In 2018, USD 2.59 is expected. This would put the P / E18 at around 25.9.
And finally the group, which is capitalized at around USD 11.87 billion Chipotle Mexican Grill (CMG), whose share has recently suffered a lot. The reason for the crash and the current stay in the volatile consolidation was the severe loss of reputation as a result of some food poisoning in 2015.
As for Chipotle's business model, they mainly specialize in Mexican food such as burritos and tacos. With a radical change towards healthy nutrition, the group is trying to counteract the resulting loss of reputation with all its might.
In mid-April, the company launched a new advertising campaign that strongly addresses this healthy lifestyle. The declared goal of CMG is to develop into the first national brand among fast food chains that completely dispenses with synthetic colors, flavorings and preservatives in its products. This clearly targets the growing social trend towards general physical fitness and healthy nutrition. In the long term, it is assumed that the steadily increasing prosperity could have a positive effect on the development of this trend and that the number of health-conscious people will continue to increase.
Apart from that, the general situation seems to be improving significantly after the hygiene scandals. The group is once again recording strong sales growth, which is essentially an indication of the return of consumer confidence. This was also characterized by the development in the first quarter. Revenue increased 28.1% year over year to $ 1.07 billion (consensus: $ 1.05 billion). The EPS of USD 1.60 was well above the expected USD 1.27. Comparable restaurant sales rose 17.8% and the operating margin improved from 6.8% to 17.7%. In addition, 57 new restaurants opened. With this, the group seems to have found its way back on the growth path. For 2017, the consensus expects an EPS of USD 8.22. In 2018, USD 12.24 is expected. This would put the KGVe18 at around 33.
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