Quick Service Restaurants: Restaurant Growth Drives Revenues

We take a look at the performance of the major restaurants, McDonalds Corp. (MCD), YUM! Brands (YUM), and Starbucks Corporation (SBUX) in comparison to the overall Quick Service Restaurant (QSR) segment. QSR’s are a specific type of restaurant, which serves fast food cuisine with low price and generally do not have table service. Gridstone covers 13 companies in the QSR segment. Let’s take a look at the performance of the QSR’s in CY07.

Revenue:

The 3 biggest players in the QSR segment are MCD, YUM and SBUX. MCD and YUM’s revenues have grown below the industry trend. The industry revenue has grown at an average rate of 10.1%, whereas MCD and YUM have grown at an average rate of 9.1% and 8.9% respectively. On the other hand SBUX has grown at a rate of 19.7%. However, some of the newer QSR’s such as Chipotle Mexican Grill (CMG) and Panera Bread Co. (PNRA) are growing above the average industry rate at 31.9% and 28.7% respectively. The small size of CMG and PNRA allows them to grow at a faster rate than the well established chains.

Exhibit I: SBUX revenue growth is outpacing QSR industry revenue growth at 19.7% y/y

Source: Gridstone Research

Restaurant additions:

One of the key drivers for revenue growth in the QSR industry is the number of restaurants added. Therefore, on analyzing the data we find the QSR industry added about 4% more restaurants for CY07. Similarly, SBUX added 19.7% restaurants y/y well outpacing MCD and YUM at 1.1% and 2.2% y/y respectively. CMG and PNRA also outpaced the industry average by adding 21.2% and 9.8% y/y respectively.

Exhibit II: SBUX restaurant growth is also above industry average restaurant growth at 19.7%

Source: Gridstone Research

Adding more restaurants appears to have a direct relationship with increase in QSR restaurants revenues, as witnessed in the case of SBUX, CMG and PNRA. Therefore, in order to grow faster than the competitors’ restaurant additions are the key drivers for revenue in this industry.