Saturday, August 23, 2014

The top 5 restaurants of 2020

Some of America's most popular fast-food chains are expected to see rapid growth in the next few years, a research company predicts.

A shakeup is coming
Expect a shakeup in the restaurant rankings if Janney Capital Markets' predictions for America's top 10 restaurant chains in 2020 prove to be correct. The firm expects a swift rise in fortunes for a few of the largest chains, according to a recently released report.

From a sales perspective, Chick-fil-AStarbucks (SBUX) and Chipotle Mexican Grill (CMG) are forecast to be some of the biggest breakout stars as measured by U.S. systemwide sales.

"It highlights how certain brands that are maybe more in line with what today's consumer wants and future consumers want are moving up the ranks nicely," said Mark Kalinowski, a restaurant analyst at Janney Capital Markets.

While the industry's top sales performer is expected to hang on to its spot, Janney forecast a shuffling of every other ranking in the top 10.

Notably, the firm expects DineEquity's Applebee's to fall out of the top 10, largely because it is a full-service concept, a category which generally does not draw the same kind of appeal or frequency as quick-service restaurants. Still, it will likely stay the biggest full-service chain during the next several years, analysts forecast.

While many fast-growing chains didn't quite make the top 10 cut, Janney singled out Panera Bread (PNRA), Sonic Drive-InBuffalo Wild Wings (BWLD), Popeyes Louisiana Kitchen (PLKI), Panda ExpressTexas Roadhouse (TXRH), Jimmy John's and Darden's LongHorn Steakhouse as concepts that should "remain impressive growers."

  • Future Rank: #1;  Current Rank: #1
  • Judging from its latest earnings report, McDonald's domestic sales may be down but the chain's definitely not out. 
  • The fast-food giant is forecast to hold on to its top slot despite increased competition from chains like Starbucks, Chipotle and Chick-fil-A. 
  • Interestingly, Janney sees McDonald's burger rivals becoming less of a long-term threat as non-burger chains try to encroach upon its turf. 
  • Right now, McDonald's is able to fend off Burger King by delivering similar products or focusing on being competitive price-wise, Janney wrote. "But these tactics might work less well over the long run against chains that by their definition differ significantly from McDonald's," according to the note. 
  • While McDonald's does face some issues in the U.S., such as a stretched consumer and near-flat sales, Kalinowski stressed that it's important to keep in mind that the fast-food chain still has multiple strengths, including a large U.S. footprint and big marketing budget. 

  • Future Rank: #2;  Current Rank: #3
  • In recent years, the coffee chain has rapidly expanded both in the U.S. and abroad as it diversifies its portfolio with juice, tea and food. 
  • For three years, Starbucks has been Janney's top restaurant stock pick. It sees the chain as one that has the brand look and feel that today's consumers gravitate to. 

  • Future Rank: #3;  Current Rank: #2
  • By 2020, Starbucks will throw privately-held Subway from its #2 spot. Despite this, the sandwich chain's domestic sales are expected to rise to $18.4 billion from $12.7 billion last year. 

Dunkin' Donuts
  • Future Rank: #4;  Current Rank: #7
  • Don't bet against this chain, wrote Janney, predicting Dunkin' Donuts' West Coast expansion will prove to be successful. 
  • "They are significantly underpenetrated in restaurants west of the Mississippi River," said Kalinowski, adding that Dunkin' has a lot of room for growth in the region moving forward.

  • Future Rank: #5;  Current Rank: #9
  • As privately-held Chick-fil-A expands further outside of the Southeast, Janney expects the chain's U.S. systemwide sales to double by 2020. The chicken chain is a "serious and growing competitive threat" to fast-food heavyweight McDonald's, analysts wrote. 

  • Future Rank: #6;  Current Rank: #4
  • Although Janney thinks Wendy's will slide in comparative rankings, it expects the fast-food chain to boost US systemwide sales to $10.5 billion from $8.8 billion last year. 
  • The chain is expected to battle Dunkin' Donuts and Chik-fil-A for the 4th, 5th and 6th spots. 
  • "If either Dunkin' or Chick-fil-A fail to crack the top five by 2020, Wendy's likely will be the reason why, as our projection of $10.5 billion in year 2020 U.S. systemwide sales for Wendy's could prove somewhat conservative," they noted. 
Taco Bell
  • Future Rank: #7;  Current Rank: #6 
  • If Taco Bell, Yum Brands' Mexican chain, plays its cards right, it could crack the top five, Janney analysts forecast. Regardless, the chain, which rolled out breakfast nationwide earlier this year, should remain in the top 10.
Burger King
  • Future Rank: #8;  Current Rank: #5
  • It's tough out there for burger chains as they face growing long-term threats from newer chains and must differentiate themselves. Due in part to these pressures, Burger King will fall out of the top five chains, Janney predicts. 
  • By 2030, analysts question if the burger giant will even be in the top 10. 

Chipotle Mexican Grill
  • Future Rank: #9; Current Rank: #17
  • In an industry where many restaurants are delivering ho-hum results, fast-casual chain Chipotle recently topped analysts' expectations and reported an impressive 17.3 percent same-store sales growth during the second quarter. 
  • Janney based its systemwide sales forecast of $8.8 billion in 2020, up from $3.2 billion last year, on annualized same-store sales projections of around 5 percent.
  • Still, Janney noted even this "could prove conservative," advising investors to "keep an eye on those future same-store sales numbers." 
Pizza Hut
  • Future Rank: #10;  Current Rank: #8 
  • Although analysts expect Yum Brands' Pizza Hut to remain the country's largest pizza chain, they expect its rank to slide somewhat as other chains gobble up sales. Janney questioned whether the chain will use its resources better moving forward.
  • Pizza Hut's smaller rival Domino's Pizza could possibly even break into the top 10, the firm wrote. 

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