Restaurant Industry Outlook: Fast-Food vs. Fast-Casual
There’s arguably nothing more American than a fresh meal from a fast-food restaurant. The mass appeal of fresh food in minutes, without even leaving the car in some cases, has led to a well-saturated market with a wide variety of fast-food options.
Fast-food chains have dominated the retail restaurant industry for years, but they’ve faced a new challenge recently. The new breed of “fast-casual” restaurants, which typically offer higher quality food at a slightly higher price level, have been gaining a lot of traction lately.
Overall, the retail restaurant industry is currently in the top 19% of the Zacks Industry Rank, meaning that investors should probably be looking at adding a dining option to their portfolio soon. So, what’s the safer bet right now, fast-food or fast-casual? Below we’ve highlighted some of the leaders in both industries:
Fast Food Restaurants | Zacks Rank |
Carrols Restaurant Group (TAST) | #1 (Strong Buy) |
Bojangles (Boja) | #2 (Buy) |
Restaurant Brands International (QSR) | #3 (Hold) |
McDonald’s (MCD) | #3 (Hold) |
Wendy’s (WEN) | #3 (Hold) |
Popeye’s (PLKI) | #3 (Hold) |
YUM Brands (YUM) | #3 (Hold) |
Fast Casual Restaurants | Zacks Rank |
The Habit Burger Grill (HABT) | #2 (Buy) |
Shake Shack (SHAK) | #2 (Buy) |
Panera Bread (PNRA) | #3 (Hold) |
Zoe’s Kitchen (ZOE) | #3 (Hold) |
Chipotle Mexican Grill (CMG) | #3 (Hold) |
El Pollo Loco (LOCO) | #4 (Sell) |
Noodles & Company (NDLS) | #4 (Sell) |
In general, it would appear that the major fast-food restaurants have a slight edge over the fast-casual industry right now. The fast-casual segment is being held back by some of the weaker stocks, including Noodles and Company and newly public Mexican chain El Pollo Loco.
On the other hand, we do see a Zacks Rank #1 (Strong Buy) in the fast-food category. Interestingly, Carrols Restaurant Group isn’t known for its own brand of restaurants, but it is the largest franchisee of Burger King Restaurants in the world. Burger King recently combined with Canadian-based Tim Horton’s to form Restaurant Brands International, which sits at a Zacks Rank #3 (Hold).
The Habit Burger Grill and Shake Shack, both extremely trendy burger chains, are the strongest stocks in the fast-casual segment. These companies have targeted a similar flavor as McDonald’s, the long-time leader in all things burger. While these fast-casual options are more expensive, they have a certain element of cool that McDonald’s has lost over the years.
McDonald’s is actually a particularly interesting company to look at right now. For the first time in the history of the company, McDonald’s plans to close more restaurants than it opens in 2015. While this may not be a massive deal in the grand scheme of things, it symbolizes the company’s recent struggle to grow. In fact, many have felt that McDonald’s has been stuck in the past, as the company is just now planning to roll out a mobile application in October, while many in the industry have had mobile interaction for years.
One thing that McDonald’s investors can look forward to is the company’s plans to bring all-day breakfast to every location. This is important because of the growing consumer appeal of breakfast. In the 12-month period ending in May 2015, breakfast visits were up 4%, and cafes represent the fastest growing segment of the fast-food industry (also read Latest Craze in the U.S. Restaurant Industry: Breakfast ).
Interestingly enough, the fast-food and fast-casual stocks aren’t necessarily supporting the strong retail restaurant industry. In fact, we see the more traditional casual restaurant at the top of the industry, with BJ’s Restaurants (BJRI), Ruby Tuesday ( RT), and Olive Garden parent Darden Restaurants (DRI) all sporting a Zacks Rank #1 (Strong Buy).
Bottom Line
While the fast-casual chains have become very trendy recently, it hasn’t necessarily translated into success on the market. In fact, sometimes this hype can artificially inflate a stock and cause investor disappointment later on. Right now, the retail restaurant industry is thriving, as consumers are spending more and more money eating out. From an investor’s perspective, the traditional casual restaurants are actually performing the best, but in a head-to-head between fast-food and fast-casual, it seems that fast-food has the slight edge right now.
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Click to get this free report MCDONALDS CORP (MCD): Free Stock Analysis Report RESTAURANT BRND (QSR): Free Stock Analysis Report BOJANGLES INC (BOJA): Free Stock Analysis Report CARROLS RESTRNT (TAST): Free Stock Analysis Report WENDYS CO/THE (WEN): Free Stock Analysis Report POPEYES LA KTCH (PLKI): Free Stock Analysis Report YUM! BRANDS INC (YUM): Free Stock Analysis Report HABIT RESTRNTS (HABT): Free Stock Analysis Report SHAKE SHACK INC (SHAK): Free Stock Analysis Report PANERA BREAD CO (PNRA): Free Stock Analysis Report CHIPOTLE MEXICN (CMG): Free Stock Analysis Report NOODLES & CO (NDLS): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research
