Fast-Food Restaurants’ Pool

Worldwide sales in the restaurant industry exceeded $2.8 Trillion in 2021. This was slightly less than 4% of the total world economy. What is interesting about this statistic is that it is estimated that there are 20 million restaurant outlets worldwide. In effect, there is one restaurant for every 400 people. 

The restaurant sector is divided into several industries. The largest industry within the restaurant sector of the economy is referred to as the Informal Eating-Out (IEO) industry; otherwise known as fast-food restaurants. It is about 45% of the entire restaurant sector. Sales exceed $1.2 Trillion worldwide and there are about 9,000,000 (9 Million) outlets. Of all these restaurants, one brand stands out as the DeFacto leader of the IEO industry, McDonald’s. McDonald’s has 39,000 outlets throughout the world and generates over $90 billion in annual sales. Thus, McDonald’s is about 8.5% of all fast-food sales.

The informal eating-out industry has two distinct characteristics. First, these restaurants do not serve alcohol. Secondly, they have limited services; i.e. there are no formal dining-in experiences (Hostess, Waiter/Waitress, Customized Entrees, Etc.). The informal eating-out industry is further divided into seven sub-groups:

1. Quick-Service Restuarant (McDonalds, Wendy’s, Burger King)
2. Home Delivery (Mainly Pizza Chains)
3. Street Vendors
4. Coffee Shops/Stands
5. Cafés
6. Juice/Smoothie Bars
7. Cafeterias

This section of the Value Investment Fund pools of potential security opportunities focuses on the IEO industry. Potential investments come from three of these sub-groups, specifically quick-service, home delivery and coffee shops. Members of this pool are:

• McDonald’s (Standard Bearer)
• Restaurant Brands International (Tim Horton’s, Burger King, Popeyes)
• Starbucks
• Chipotle Mexican Grill
• Jack-in-the-Box
• Yum Brands (Kentucky Fried Chicken, Pizza Hut, Taco Bell)
• Wendy’s
• Shack Shack
• Dominos Pizza

Of these nine publicly traded companies, Chipotle Mexican Grill is excluded as an opportunity due to its abnormally high market price against its intrinsic value. However, it is included for comparison purposes and as an example of market hype and extremism. The market price has been so high for so long in comparison to its intrinsic value (estimated at less than 20% of the current market price) that this company is not a legitimate candidate for value investors. There is an article in this section of the website that explains this in further detail; for now, Chipotle is not a viable investment opportunity for any kind of investor (unless you want to lose your money).

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• Shake Shack – Intrinsic Value of Stock

  One of the members of the informal eating out industry, fast-food restaurants, is Shake Shack. The company is relatively young by any business standard opening its first restaurant back in 2001 and going public in 2014.

• Wendy’s – Intrinsic Value of Stock

  Wendy’s is the second largest publicly traded informal eating-out (fast-food) hamburger chain. Its current market capitalization places it around $5 Billion.

• Chipotle Mexican Grill, Inc. – Intrinsic Value for Value Investing

  Chipotle Mexican Grill, Inc.’s current (01/24/22) market price is around $1,400 per share, trading as high as $1,930 late last summer (summer of 2021).

• Starbucks – Intrinsic Value for Value Investing

  What would you pay for a stock that has multiple negative attributes? Starbucks intrinsic value is less than 40% of market value.

• McDonald’s Intrinsic Value

  President, Chief Executive Officer and Director of McDonald’s Inc. said it best in the earnings call in late January 2022, we are “… witnessing the beginning of the next great chapter at McDonald’s, …”. He continued with “2021 was a record-setting year for McDonald’s on many dimensions, …” Simply put, McDonald’s had the best financial ...

• Domino’s Pizza Inc. – Intrinsic Value

  Domino’s Pizza is the third largest publicly traded fast-food chain in the world. With over 18,800 locations worldwide, the business model is three pronged with franchising as the primary profit center.