Restaurant Stocks: Fast Food Adds Booze to Gin Up Profits

Fast food restaurants are apt to add beer and wine to menus, if only because their competitors are doing the same

Restaurant Stocks: Fast Food Adds Booze to Gin Up Profits

Care for a Budweiser with that Big Mac?

Starbucks185 Restaurant Stocks: Fast Food Adds Booze to Gin Up ProfitsThat might have been an unthinkable combo just a few years ago, but don’t be shocked if you’re soon able to enjoy a cold beer with a burger and fries at your local fast food joint.

In fact, it’s already happening, and the response to those early alcohol programs has been solid enough for most of the major fast-food restaurant stocks to consider diving into — or diving deeper into — beer and wine sales.

Booze and Fast Food Already a Proven Pair

Truth be told, when Starbucks (SBUX) began selling beer and wine at one locale in 2010, it wasn’t a significant stretch for the ambience-focused chain of coffee houses. Patrons were already sitting down and staying a while, there for social reasons more so than for a dose of caffeine. Bars play the same role, so the leap was a fairly easy one for Starbucks.

The response to the program was so strong, however, the company added alcohol to a small tranche of venues in 2012. Still finding big success in those stores, in March of this year the chain of coffee shops announced it was going to expand its beer and wine offer by adding it to the menu in thousands of its shops over the next few years.

Starbucks is hardly the only partial-service, sit-down eatery to wade into spirits sales, however. Its success has spurred other fast food restaurant stocks to do the same. Chipotle Mexican Grill (CMG) got into the game a few years ago at select stores by offering beers and margaritas. Again, it makes sense. Nothing washes a premium burrito down like a margarita or a Corona. That’s why similar chains like Moe’s, Baja Fresh and Qdoba also offer beer at select stores.

That’s not where the union of fast food and booze stops, however. Fast food restaurant stocks have quickly warmed to the idea. Indeed, the two worlds have collided in places that few would have ever expected just a few years ago. For instance…

Ever wanted a Bud Light with your Whopper? Burger King (BKW) really can make it your way, even if “your way” includes with a brewski. The burger joint offers beer in a handful of its restaurants, mostly the ones where tourists are likely to visit, like its units in Las Vegas and Times Square.

Some Sonic drive-ins will sell beer or wine to patrons sitting at their patio tables, though the organization has wisely chosen not to serve alcohol to customers who stay in their vehicles. Other fast food chains like Sbarro and Steak ‘n Shake have also ventured into the booze game.

Welcome to the Future of Restaurant Stocks

So what? If only one or two of these names were adding beer and wine to their menu, it would be little more than an interesting experiment. With several of these fast food restaurant stocks getting into — and staying in — the alcohol game, however, it’s pretty clear that this is becoming the new norm.

The lines that some companies were previously unwilling to cross are no longer there. It’s only a matter of time before not serving alcohol would be an oddity for a fast food chain, limited more by local laws than concern about maintaining a kid-friendly image.

The obvious question many investors are forced to ask is, why? The answer is an equally obvious one … money. The addition of beer and wine to fast food menus draws a much-needed crowd to restaurants looking to stay competitive in the ultra-competitive world of restaurant stocks.

Specifically, booze sales can give a fast food operation marketing firepower in the all-important evening market, from a typical dinnertime to close. Not only does the addition of alcohol give these stores a shot at peeling away some business from traditional sit-down restaurants that already offer alcohol, but it may even create a new segment of customers who would like to grab a beer and a burger but can’t justify the slightly-bigger ticket that typically comes at a full-service venue.

And make no mistake — the money at stake is significant enough for these restaurant stocks to risk the potential altering of an image that all of these companies have spent years (and millions of dollars) crafting.

Bottom line? Starbucks COO Troy Alstead summed it up best by saying of alcohol’s advent in the fast and casual setting, “We’ve tested it long enough in enough markets — this is a program that works…. As we bring the evening program to stores, there’s a meaningful increase in sales during that time of the day.”

As it turns out, that was all the competition needed to hear before following suit.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2014/04/fast-food-restaurant-stocks-sbux/.

©2014 InvestorPlace Media, LLC

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