Quick Service Restaurant (QSR) Report – February 2018

Full report available here: QSR Report


The Quick Service Restaurant (QSR) industry ended the quarter with ongoing fast food price wars, minimum wage hikes, advancing the use of mobile technology and a focus on overall consumer experience. An impending threat to QSRs is the Convenience Store sector. Over the years, c-stores have continued to stretch its reach and compete with QSR’s with expanded food service accounting for 21.7% of in-store sales in 2016. C-stores have a strong value proposition and food service is becoming the driving force of their businesses by ramping up the quality and quantity of their food. They continue to compete on value, variety and beverages. In response, QSRs have been exploring drive through efficiencies, developing healthier options over the years, a focus on quality & freshness and modernizing interiors.

The Price War

At the beginning of 2018, Wendy’s announced the expansion of its 4 for $4 bundle deal.  The deal includes the option to pick from one of eight entrees and pair it with chicken nuggets, fries and a drink for $4. McDonald’s has debuted a new $1, $2, $3 menu and Taco Bell expanded its own dollar menu with limited time offerings through 2018.  This approach has franchise owners fearing lower checks and diminishing ability to control menu prices. With value driven deals, sales of higher price menu items are at risk.

Minimum Wage Hikes

Federal minimum wage remains $7.25 per hour.  Across the country, more than 18 states have approved a pay increase starting at the beginning of 2018.

Mobile & Technology

McDonald’s unveiled its new mobile-order and pay platform, and Experience of the Future prototype of touch –screen kiosks and partial table service prototype with plans to roll out to all of its U.S. location by 2020.  Starbucks continues to fine tune its instore mobile ordering. Dunkin Donuts expanded mobile features to include On-the-Go Ordering to its mobile app, which lets guests order ahead of spinning through the drive thru.  Pizza Hut has focused its attention to voice activation ordering and a new online pizza tracker.  Domino’s is cruising back with a focus on exploring delivery innovations including with drones and specially designed delivery vehicles.

Industry Highlights of the Top 5

McDonald’s CEO Steve Easterbrook has been leading the company for the past three years and shares rose 42%.  In 2017, 92% of locations are franchised with a push towards 95% globally.  Franchise profit margins are nearly four times greater than company operated units (revenues are lower offset by lower operating expenses). Analysts estimate same store sales may increase 3%-5% by 2019 based on technology roll out of self-service kiosks and drive through efficiencies with mobile ordering. The company’s 4th quarter earnings report posted its best same-store sales growth (4.5%) up in six years.  Globally, McDonald’s plans to spend $2.4b on renovating an additional 1,000 existing locations in 2018 with upgrades of sleek furniture, kiosks and table service.

Starbucks is turning its attention to developing the company’s Reserve Roastery concept with premium options.  U.S. locations are to include Seattle, New York City and Chicago.  With its existing locations, the company continues to focus its commitment on food options to attract consumers, targeting afternoon customers and boosting digital transactions.  Its CFO reported that continued strong growth and performance from CAP demonstrates that Starbucks has two significant profit engines driving global returns, North America business and the broader CAP market.  Starbucks reported 2018 Q1 US Comp store sales up 2% and an 11% increase year over year in active Starbucks Reward members (up 1.4 million).

Subway had a challenging year in 2017 with over 900 restaurants closing in 2017 with reported traffic declining 25% in the past five years. This decreased traffic correlates with lower profitability of franchises.  Subway continues to promote $4.99 footlongs at the dismay of franchisees. The company’s focus has been on rebranding and strengthening its global brand management team charged with driving Subways transformation through food innovation, brand positioning, visual identity and channel development (including delivery catering and mobile ordering).

Wendy’s has been a strong competitor to McDonald’s with a focus on food innovation.  In the third quarter, same store sales increased 2% and an additional 42 restaurants added to its roster in Q3 2017.  The company plans to offer delivery through a partnership with DashDoor in 48 markets at over 2,500 of its restaurants.

Burger King reported same store sales growth up 3.6% in Q3 2017.  CEO Daniel Schwartz reported strong momentum and continued in the US both in terms of comparable sales and net restaurant growth.  Recently, Burger King has been reevaluating its re-entry into delivery options for consumers.

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