by Jeff Reeves | December 2, 2011 10:35 am
McDonald’s (NYSE:MCD) is the 800-pound gorilla of fast food. The $100 billion company turned quick-service restaurants into a science, has over 33,000 locations worldwide and is a heavyweight in breakfast and beverage sales in addition to selling burgers and fries.
It’s a nearly impossible task to knock No. 1 McDonald’s from its perch. So that’s why fast-food restaurant Wendy’s (NYSE:WEN) is instead focused on the No. 2 spot — and according to reports, has dethroned Burger King to become America’s second-most-popular burger joint.
The strategy? Higher quality foods, redesigned restaurants and marketing that showed American consumers who’s the best … behind McDonald’s, of course.
It may sound silly to have a goal of second place. But it’s important to be realistic. McDonald’s dominates the marketplace, with a 49.5% share of the “limited-service burger segment” business. Consider: With just a bit of growth, MCD will do more in sales than all of its competitors combined.
In 2010, Burger King’s market share in the burger biz was 13.3%, while Wendy’s share was 12.8%. But thanks to healthier options — including skin-on fries seasoned with natural sea salt as well as higher quality fare like its premium Dave’s Hot ’n Juicy Cheeseburgers line — reports indicate big gains for Wendy’s.
According to a report by Janney Capital Markets released Tuesday, Wendy’s likely passed Burger King in market share as a result. And if it hasn’t yet, it will in the very near future.
That may be a bragging point for Wendy’s — however, the U.S. “limited-service burger segment” is only a small piece of the fast-food pie. Chipotle (NYSE:CMG) has been one of the biggest growth stories of the past few years — with shares soaring over 260% since January 2010. Wendy’s stock is up less than 10% in the same period.
Also, international growth is really what’s fueling American-based restaurants. Take Yum! Brands (NYSE:YUM). Almost 75% of its operating profits come from abroad, including from some 3,200 KFC locations in China — and even KFCs in Kenya! Even behemoth McDonald’s has room to grow overseas, with the Golden Arches recently announcing a plan to open 700 stores in China over the next two years — roughly one a day — to build on its current total of 1,300 locations in the Middle Kingdom.
In short, a bigger bite out of the American burger market is nice…but not filling enough for a big restaurant stock these days.
Part of the reason restaurants like KFC and McDonald’s do so well abroad is thanks to a well-followed brand in the U.S. Wendy’s might be able to export its popularity later. However, with rivals like Yum! and Mickey D’s already gobbling up international market share, it shouldn’t focus too much on winning in the U.S. when the big profits are to be made overseas.
Jeff Reeves is the editor of InvestorPlace.com. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.
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