By Evie Liu
Sales of fast food are a relative sweet spot for a restaurant industry struggling with inflation, so companies are trying to cash in.
Companies from Restaurant Brands to McDonald’s and Domino’s Pizza have laid out aggressive growth plans they hope will bring a larger share of a bigger market. Sales at fast-food chains are rising far faster than those of so-called casual restaurants as rising prices send people toward cheaper options.
Restaurants Brands, the owner of Burger King, is the latest to detail a hefty investment. It said Tuesday it would purchase its largest U.S. franchisee, Carrols Restaurant Group, in an effort to quickly upgrade its stores as part of a broader turnaround plan to boost Burger King’s sales growth and profitability.
The company said in 2022 that it would spend $400 million on advertising, remodeling, and technology. Now it is spending another $1 billion on Carrols, which runs more than 1,000 Burger King locations, and plans to invest a further $500 million to give the stores a “modern image.”
“We are going to rapidly remodel these restaurants over the next five years or so and put them back into the hands of motivated, local franchisees to create amazing experiences for our guests,” said Tom Curtis, president of Burger King U.S. and Canada, in a statement.
Offering the remodeled restaurants to new owner-operators would be an effective way to retain and attract quality franchisees, wrote Wells Fargo analyst Zachary Fadem on Tuesday.
“We are mixed on this deal,” he wrote. “Strategic rationale makes sense, but it’s a pricey move.”
Last month, McDonald’s said it is planning to open 10,000 restaurants globally by 2027, which would expand its current footprint by 25%. The firm also expects to boost membership in its loyalty program by two-thirds to 250 million and more than double the program’s sales to $45 billion a year.
In December, Domino’s Pizza announced a growth plan that aims to open 1,100 new stores through 2028 and increase retail sales by 7% every year. The pizza chain began working with Uber Eats last year in an effort to reach wealthier households. It has been taking market share from independent, regional, and national rivals.
Papa John’s is upping investment as well through a plan announced this month. Franchisees have voted to increase their contribution to the national marketing program to reduce local advertising costs and boost profitability. New franchisees can get waivers of the marketing contributions, while rebates are available for stores with high growth in sale volume.
The series of expansion announcements comes as high inflation has crimped consumers spending power, making fast-food chains more attractive than ever. Although the restaurant industry has remained largely resilient despite soaring menu prices, more consumers are choosing fast food as a less expensive choice.
During the latest reported quarter, same-store sales grew 8.8% from a year ago at McDonald’s, 7.2% at Burger King, and 2.2% at Papa John’s. Domino’s saw a 0.6% decline at its U.S. stores, but 3.3% growth for international locations.
According to data from Black Box Intelligence, same-store sales at quick-service restaurants were up 3.8% higher from a year earlier in November, while traffic was down just marginally. Casual dining, on the other hand, saw 0.4% growth in sales, while the number of restaurant visits was down 3% from a year ago.
Of course, even fast food is no longer as affordable as it used to be. Over the past 12 months, fast-food prices overall have jumped 5.9%, according to the Bureau of Labor Statistics. On a call to discuss its earnings for the September quarter, McDonald’s said its menu prices have increased by 10% in 2023.
Traffic at the chain’s U.S. restaurants fell for the first time in 2023 as lower-income consumers made fewer visits, though that was partly offset by middle- and higher-income customers trading down from more expensive options, said CEO Chris Kempczinski.
As the cost of doing business stays high, restaurant companies will be focusing more on productivity and margin this year, especially through the adoption of new technologies, Morgan Stanley analyst Brian Harbour said in a Tuesday note. “2024 will offer more proof points for who is harnessing technology the best,” he wrote.
McDonald’s, for one, has joined with Google Cloud to deploy artificial intelligence solutions to its restaurants. The company said the technology would help it identify cost-saving opportunities and deliver hotter, fresher food to customers faster.
Write to Evie Liu at email@example.com