Chipotle executives believe that traditional fast food, such as McDonald’s, Burger King, and Wendy’s, are “going away.”
What will replace them are more upscale chains like Chipotle “and others like us,” the burrito chain’s co-CEO, Monty Moran, said in a recent interview.
It’s easy to see where Moran is getting that idea.
Chipotle reported 19.8% same-store sales growth in the US in the most recent quarter. By comparison, McDonald’s, the largest fast food chain in the US by sales, recorded a 3.3% drop in domestic same-store sales last quarter.
That contrast is representative of a broader trend in the US toward fast casual chains, which promise higher-quality, healthier foods at a slightly higher price than traditional fast food.
Traffic at fast food vendors was flat last year compared to a year earlier, while fast casual chains — such as Chipotle and Panera — saw 8% average growth in guest counts, according to The NPD Group.
So Americans’ tastes are clearly changing. But is the shift broad enough to kill the Golden Arches?
The answer is no, according to several analysts we spoke to.
“I don’t think you’ll see, within our lifetimes, fast casual completely replacing traditional fast food,” said Mark Kalinowski, a restaurant analyst for Janney Capital Markets.
Fast casual chains will continue to steal market share from more traditional fast food outlets, but McDonald’s, Burger King, Wendy’s, and others still have two major advantages that will keep them afloat.
1. Chipotle and other fast casual chains are too expensive for a large segment of the population. A typical meal from a traditional fast food chain ranges between $US3 and $US6, according to Trefis. By comparison, the typical range for fast casual meals is $US6 to $US15.
In order to completely replace fast food, Chipotle would have to open “some form of cheap chic restaurant either under its own name or create a new brand in low income areas,” says Brian Sozzi of Belus Capital Advisors. “Those restaurants would offer Chipotle’s healthier fare, just at cheaper prices, rendering a trip to McDonald’s for a mum on a budget useless.”
2. Fast food restaurants already have thousands of locations in the US.
McDonald’s, Subway and Wendy’s have more than 46,000 locations in the US. Just in the last year, McDonald’s opened nearly as many new restaurants as Chipotle operates in total (1,595), according to Yahoo News‘ Chris Nichols.
For further perspective, Nichols points out that McDonald’s domestic sales last year totaled nearly $US36 billion, which was greater than the entire fast casual industry’s sales ($US34.5 billion), according to Technomic. To fend off growing competition from more upscale rivals, traditional fast food chains are remodeling restaurants, adding more quality ingredients to their menus and trying to improve customer service.
“Elements of fast casual are being incorporated into traditional fast food,” Kalinowski says.
So fast casual probably won’t kill fast food. Instead, we’ll start to see a blurring of the lines between the two.
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