Should McDonald's prepare to fight Chick-fil-A for business?

McDonald's may need to watch out for Chick-fil-A's growing business over the next 10 years, experts say. Chick-fil-A has one-sixth of McDonald's US sales in 2013, but it is growing rapidly. 

By , Burger Business

  • close
    Chick-Fil-A employee Harry Love directs drive-thru traffic in the restaurant lot, as the crowd for dining room service snakes out the door in High Point, N.C., Wednesday Aug. 1, 2012. McDonald's may need to watch out for Chick-fil-A's growing business over the next 10 years, experts say.
    View Caption

Despite the incessant chatter about “burger wars,” the competitor McDonald’s should be closely watching is neither Burger King nor Wendy’s but Chick-fil-A, according to an investor brief from Janney Montgomery Scott analyst Mark Kalinowski. He calls the chicken chain a “serious and growing competitive threat” to the largest QSR brand.

Chick-fil-A won’t top McDonald’s in total sales over the next decade, but Kalinowski argues that it may grow faster. “If Chick-fil-A can add $6.3-$9.0 billion to its systemwide sales over the next 10 years, it is entirely possible that this will be similar to—or worst-case, from McDonald’s perspective—greater than the systemwide sales that McDonald’s can add to its domestic business over that same time,” he writes.

Privately held Chick-fil-A had US sales of $5,052,589 in 2013 (from 1,775 units), about triple its size in 2003. Publicly held McDonald’s dwarfed it with domestic sales of $35,856,000 (and 14,278 stores), and while its 47 percent increase since 2003 is solid, it doesn’t match Chick-fil-A’s growth, and certainly not the chicken chain’s 12.7 percent compound annual growth rate. Kalinowski says Chick-fil-A’s growth “was achieved through a balanced mix of unit expansion (which ranged annually from +3.2 percent to +6.2 percent, depending on the year) and consistently positive same-store sales growth.”

Recommended: Six 'urban agriculture' terms explained

Kalinowski postulates several scenarios about future growth by both chains. Under what he calls Sensitivity Analysis #1 (positing 4.5 percent annualized unit growth and 4 percent annualized same-store sales growth), Chick-fil-A would rise to domestic sales of $11.4 billion in 2023. A second scenario—assuming 5 percent unit growth and 6 percent same-store sales growth)—grows Chick-fil-A to domestic sales of $14.3 billion in 2013.

“While Chick-fil-A remains meaningfully smaller than McDonald’s US today, to the extent it could be ignored as a competitive threat ten years ago, we would argue that it can no longer be ignored as a long-term competitive threat today,” according to Kalinowski.

His scenarios for McDonald’s growth are far less confident. One, based on a 2.6 percent annual sales gain and just 0.6 percent unit growth, moves McDonald’s from an estimated $36.8 billion for 2014 to $46.3 billion in 2023. A second is even more dire, based on a 0.3 percent annual gain in both sales and units. Under that scenario, McDonald’s sales would grow less than 3 percent to $36.9 billion in 2023.

Chick-fil-A’s rapid rise from a distant No. 2 in chicken sales to the category leader, passing KFC, “may hint that it could become a larger competitive threat to many more fast-food brands over 2014 and beyond—and not just chains traditionally defined as ‘chicken’ brands,” Kalinowski writes. McDonald’s sells a lot of chicken, he notes, and it is the largest QSR brand so it has the most to lose by the continued ascent of Chick-fil-A. Kalinowski rates McDonald’s shares Neutral.

Share this story:
 
 
Make a Difference
Inspired? Here are some ways to make a difference on this issue.
Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.
 

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...