Fast-food restaurants struggled like nearly all businesses during the heart of the pandemic in 2020. However, they have some inherent advantages against more traditional sit-down restaurants. Specifically, most fast-food restaurants already had drive-thru and/or takeout capabilities in place, so shuttering their dining rooms wasn’t as big of a hit. Many are also able to quickly streamline their menus to make them more cost-effective.
Considering the closure of so many traditional restaurants no doubt drove customers to one of the remaining available options — fast-food restaurants — certain chains still performed better than their peers, even within the industry. Here’s a look at some names you might want to discuss with your financial advisor to see if they’re appropriate for your portfolio.
Last updated: July 21, 2021
McDonald’s is one of the most-beloved brands in America, and indeed around the world, and its popularity — and ubiquity — helped it survive the pandemic. Notable changes McDonald’s made to its menu during the pandemic included eliminating salad and all-day breakfast in order to maximize efficiency. The company has clearly navigated the pandemic successfully, as the results in its most recent quarterly earnings report were nothing short of spectacular. The company’s revenues are now above pre-pandemic levels, at $5.12 billion, fueled in part by same-store sales in the U.S. rising 13.6%.
Wendy’s success story during the pandemic is a bit different from some of its competitors. Whereas breakfast was a bit of a drag for many other fast-food companies — and McDonald’s temporarily eliminated it altogether — it was a bright spot for Wendy’s. Combined with its digital sales, the company reported its best same-store sales growth in 15 years in November 2020, a shocking statistic in the midst of a pandemic. The company pays a decent 1.80% dividend for investors waiting for the stock to move.
Restaurant Brands International (RBI)
Restaurant Brands International is the parent company of many well-known food companies, including Burger King and Popeyes. According to the most recent QSR 50, which is a ranking of the top 50 quick-serve restaurants, Burger King is the fifth-largest fast-food restaurant in the U.S., with Popeyes ranking No. 19. Burger King suffered more than some other fast-food restaurants during the pandemic, with sales actually falling 7.9% in the company’s fourth quarter. In response, Burger King has announced its first rebrand in 20 years, updating everything from the brand’s concepts and digital experiences to its logo, colors, uniforms, packaging and more.
Jack in the Box (JACK)
Jack in the Box is another company that has thrived during the pandemic. In its quarterly results released in February 2021, Jack in the Box reported a same-store sales gain of 12.5%, its best quarter in 27 years. In the company’s second quarter, same-store sales jumped by 16%, reflecting Jack in the Box’s continuing momentum. Company leaders expect the brand to generate more than $4 billion in sales in its upcoming third quarter, the first time in company history.
Yum! Brands (YUM)
Investors in Yum! Brands get three of America’s premier fast-food chains in a single investment: Taco Bell, KFC and Pizza Hut. According to the QSR 50, those brands are the fourth-, 12th- and 13th-largest fast-food brands in the U.S. The company also owns the Habit Burger Grill. Digital sales were a big boost for the company during the pandemic. In its most recent quarter, Yum! Brands reported revenue gains of 11% for both KFC and Taco Bell, and 7% for Pizza Hut.
El Pollo Loco (LOCO)
El Pollo Loco struggled a bit more than some of its competitors in 2020, but it has been turning the corner in 2021. For the first quarter of 2021, the company’s systemwide sales grew 7.4%. Although its second-quarter results have yet to be reported, the company noted that as of April 28, year-over-year sales increased 39.1%, with a 13.5% increase on a two-year basis. Although the company only ranks No. 35 in terms of U.S. sales, analysts have a buy rating with a price target of about 13% above current levels.
Chipotle Mexican Grill (CMG)
Chipotle is the 11th-largest quick-serve restaurant in the United States in terms of sales, according to the QSR 50. In terms of fast-casual restaurants, Technomic ranks Chipotle No. 1, ahead of Panera Bread and Panda Express. During the pandemic, Chipotle thrived in part due to its order-ahead, drive-thru Chipotlanes, giving it a technological edge over some competitors. Over the past 15 years, Chipotle has shown remarkably consistent growth, with the exception being 2016 when the company had to deal with an outbreak of illness traced back to its stores. Analysts have a consensus strong buy rating on the stock, with a 12-month average price target of $1,674.48.
Jollibee Foods Corporation (JBFCF)
Jollibee is the largest and fastest-growing Asian restaurant company in the world. Headquartered in the Philippines, the company hopes to capitalize on the large number of Filipino communities in the United States by expanding to 250 North American stores by 2023. Known primarily for its fried chicken, the company also offers burgers, spaghetti, chicken sandwiches and popular Filipino items like palabok and burger steak. Jollibee Foods Corporation also owns well-known brands Smashburger and Coffee Bean & Tea Leaf.
Domino’s Pizza (DPZ)
Domino’s Pizza was another big winner throughout the pandemic, and its technological advancements may help sustain growth in the years to come. According to The Wall Street Journal, companies with the best touch-free technology already in place were able to best adapt to the COVID-19 environment. Specifically, factors that Domino’s has in abundance, such as touchless transactions, a robust online sales platform, robotics and the infrastructure needed to manage a decentralized workforce, all helped the company thrive during the pandemic. As the effects of the pandemic are still being felt in the restaurant industry, these technological advances continue to offer Domino’s a competitive advantage.
Chick-fil-A (Not Publicly Traded)
Chick-fil-A is not publicly traded, but it’s still a business worth talking about. It has a rabid following, and its supporters have pushed it to a No. 3 ranking in the QSR 50, behind only McDonald’s and Starbucks. In 2019, the company had the highest average sales per unit in the entire QSR 50, about three times the per-unit sales at Popeye’s and nearly four times the per-unit sales at KFC. Although many fans and investors would like to get their hands on shares of Chick-fil-A, that doesn’t look likely for the foreseeable future. S. Truett Cathy, the company’s founder, made his children sign a document before he died in 2014 preventing them from ever taking the company public. For now, unfortunately, the only way to invest in Chick-fil-A is to buy some of its chicken sandwiches.
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