I’ve been doing some work on different quick service restaurants (QSRs, or fast food; think McDonalds) on and off over the past few months (particularly on the heels of my “Is $QSR a quality bubble candidate?”
One idea: QSR franchise systems work for the same reason pod shops work, survival of the (economic) fittest. Underperforming locations get closed, while the successful ones thrive. In the scenario mentioned in your article, those 50 locations would most likely disappear.
If that theory in correct, the natural conclusion would be that any scaled (>1k) franchise system is more resilient than assumed (not only QSR). Somehow doesn't seem to apply to fitness chains though 😂
Looks like QSR and Wendy's have underperformed the S&P for the last 10 years by a significant margin. I'm no expert, but I like to eat burgers and I live in CA. The lines at In & Out dwarf Wendy's and Burger King. Other upstarts, like Shake Shack and Five Guys and Chick Filet appear to me to limit Burger King and Wendy's ability to grow beyond existing locations and will limit upside on existing locations. Burger King and Wendy's simply haven't (as far as I can tell) reinvented themselves in decades. While QSR and Wendy's may have long-dated bond-like longevity, shouldn't the question be whether they can outperform the market in the longterm given the competition that has come to (pardon the pun) eat their lunch?
I don't disagree that Shake Shack / Five Guys are doing much better than WEN / QSR.... but I think the suggestion that WEN or QSR are doing poorly is more anecdata than fact. Just quickly looking at the numbers, WEN hasn't has a sincle year of negative SSS comps over the past ten years. US unit count has slightly grown over the past five years; obviously you'd like them to grow more, but i tihnk it's pretty saturated at almost 6k boxes
Franchised QSRs also carry a decent amount of leverage (4-6x usually) with MCD as an exception. JACK looks particularly beaten up for their high leverage despite >2k franchised units (also in the burger space) and stable fundamentals.
this is a good one! Though it is slightly different than the hamburger / friend chicken i was focused on..... but it's definitely clsoer to that than subway shops; will give it more thought
BM was home meal replacement not QSR. It also had a very flawed development model where the franchisees were incented to build using the franchisors' "free" capital and earning a development fee for each new unit. Therefore, it lacked the fundamental unit level economics that exist in most QSR. BM was essentially another version of a Ponzi.
One idea: QSR franchise systems work for the same reason pod shops work, survival of the (economic) fittest. Underperforming locations get closed, while the successful ones thrive. In the scenario mentioned in your article, those 50 locations would most likely disappear.
If that theory in correct, the natural conclusion would be that any scaled (>1k) franchise system is more resilient than assumed (not only QSR). Somehow doesn't seem to apply to fitness chains though 😂
no- i specifically called out QSRs because of their unique logistics. Fitness chains would be much more like sandwich shops in that regard
Unique logistics is just one type of moats, but I think it applies to any franchise system with some barrier to entry or required technical expertise.
Looks like QSR and Wendy's have underperformed the S&P for the last 10 years by a significant margin. I'm no expert, but I like to eat burgers and I live in CA. The lines at In & Out dwarf Wendy's and Burger King. Other upstarts, like Shake Shack and Five Guys and Chick Filet appear to me to limit Burger King and Wendy's ability to grow beyond existing locations and will limit upside on existing locations. Burger King and Wendy's simply haven't (as far as I can tell) reinvented themselves in decades. While QSR and Wendy's may have long-dated bond-like longevity, shouldn't the question be whether they can outperform the market in the longterm given the competition that has come to (pardon the pun) eat their lunch?
I don't disagree that Shake Shack / Five Guys are doing much better than WEN / QSR.... but I think the suggestion that WEN or QSR are doing poorly is more anecdata than fact. Just quickly looking at the numbers, WEN hasn't has a sincle year of negative SSS comps over the past ten years. US unit count has slightly grown over the past five years; obviously you'd like them to grow more, but i tihnk it's pretty saturated at almost 6k boxes
Franchised QSRs also carry a decent amount of leverage (4-6x usually) with MCD as an exception. JACK looks particularly beaten up for their high leverage despite >2k franchised units (also in the burger space) and stable fundamentals.
I eat wonderful breakfast tacos most Saturday mornings at a local Mexican restaurant that occupies a failed Kenny Rogers' Roasters store.
I don't think kenny rogers would qualify here; they peaked under 400 restaurants.
Boston Chicken comes to mind as a failed QSR.
this is a good one! Though it is slightly different than the hamburger / friend chicken i was focused on..... but it's definitely clsoer to that than subway shops; will give it more thought
BM was home meal replacement not QSR. It also had a very flawed development model where the franchisees were incented to build using the franchisors' "free" capital and earning a development fee for each new unit. Therefore, it lacked the fundamental unit level economics that exist in most QSR. BM was essentially another version of a Ponzi.
interesting; gracias