Sunday, February 14, 2016

Fear the Bird: Chick-fil-A 'a growing longterm threat to McDonald's'

Says Janney analyst Kalinowski

Fear the Bird: Chick-fil-A 'a growing longterm threat to McDonald's'

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Remember Col. Sanders? KFC owner Yum Brands still has 4,000 stores around the U.S., open every day. But market share has sunk from 40% at the end of the 1990s to just 22% today. Meanwhile, Chick-fil-A, the family-owned, Christian-friendly chain that keeps the Lord's day holy by shutting on Sundays, is now the nation's most popular bird-meat meal purveyor, with 26% (more than 1 in 4) of the chicken-chain market, despite a count of just 2,000 stores, half KFC's total.

And fast-food leader McDonald's (with its Chicken McNuggets, McChicken Sandwich, and all) ought to be worried, writes Janney Capital Markets analyst Mark Kalinowski, in a report to clients.

McDonald's still outsells evey other U.S. restaurant chain, with $36 billion in sales last year, triple Subway or Starbuck's, nearly four times Wendy's or Burger King or Taco Bell. But Chick-fil-A, #9 with $5 billion in sales, has been growing rapidly larger -- tripling its market share in 14 years -- and could actually add more sales over the next decade than McDonald's, if current trends hold.

Adding to McDonald's worries are a recent skid in sales since the recession ended. Kalinowski expects McDonald's sales will actually fall lin June, with second-quarter profits also likely to slip below last year's levels.

What's wrong? Kalinowski surveys McDonald's franchisees, and finds them more down on the chain than in 63 previous surveys, with a median rating of less than 2 on a scale of 1 to 5. Sample comments from unnamed McDonald's franchise owners:

"Any-size soda is killing (window sales). Our average check is dropping like a rock."

"Customers with jobs are not choosing McDonald's. (It's as if) we have told customers our food is only worth $1.00 So it is cheap and bad for them." More-expensive "fast-casual (chains) have been able to brainwash customers that their food is good for them. Probably because they have not discounted it..."

Several complained the company sells too many items, and spends too much time ensuring "compliance" with corporate directives to push certain ones at the expense of others.

One complained about World Cup advertising: "Events in other countries do not build USA sales." 

What about the snazzy new diner-type stores? "The rebuilds and remodels do not produce sales increases... All we are doing is improving the assets" of McDonald's property ownership.

There were also positive comments that put the chain's recent stall in perspective: "With the buying power of McDonald's, I would hate to be a competitor."

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About this blog

PhillyDeals posts interviews, drafts and updates that Joseph N. DiStefano writes alongside his Sunday and Monday columns and ongoing articles about Philadelphia-area business.

DiStefano studied economics, history and a little engineering at Penn. He taught writing and research at St. Joe’s. He has written for the Inquirer since 1989, except when he left a few times to work at Bloomberg and elsewhere. He wrote the book Comcasted, and raised six kids with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com, 215.854.5194, @PhillyJoeD. Read his blog posts at http://www.philly.com/PhillyDeals and his Inquirer columns at http://www.philly.com/philly/columnists/joseph-distefano/. Bloomberg posts his items at NH BLG_PHILLYDEAL.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

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