Whether or not customer tastes are changing, and what that means for the quick-service industry as a whole, one fact remains: The top chains are going up in brand value.
In the latest BrandZ rankings by WPP and Kantar Millward Brown, the top eight fast-food chains in the U.S. counted up to $229 billion, an increase of 5 percent over last year.
Not surprisingly, the top earner in the game, McDonald’s, was also the brand value front-runner. The chain came in at $125 billion—good for the seventh most valuable brand in the country overall. McDonald’s accounted for more than 50 percent of the entire fast-food category’s total brand value on BrandZ. (Note: this is a U.S. ranking).
McDonald’s was far and away the No. 1 chain in this year’s QSR 50. For 2017, U.S. systemwide sales (in millions), McDonald’s raked in $37,480.67. Average-unit volumes were $2.7 million across more than 14,000 U.S. restaurants. As for recent results, McDonald’s U.S. comps increased 2.4 percent, international lifted 5.4 percent, and “high growth” international markets saw a 4.6 percent boost in the third quarter, marking 13 consecutive quarters of positive global gains. McDonald’s posted revenue of $5.37 billion in the quarter. The company’s No. 7 ranking was up a spot from last year and represented a 13 percent change in value.
Here’s a look at where the other seven ranked:
Methodology: Commissioned by WPP, the valuation behind the BrandZ Top 100 Most Valuable U.S. Brands was conducted by brand equity research experts Kantar Millward Brown. The methodology mirrors that used to calculate the annual BrandZ Top 100 Most Valuable Global Brands ranking, which is now in its 13th year. The ranking combines rigorously analyzed financial data from Bloomberg and Kantar Worldpanel with the opinions of over 164,000 America consumers gathered for over 1,500 brands in nearly 130 categories. The ability of any brand to power business growth relies on how it is perceived by customers. As the only brand valuation ranking grounded in consumer opinion, BrandZ’s analysis enables U.S. brands to identify their strength in the market and provides clear strategic guidance on how to boost value for the long-term.
Starbucks
Fast-food ranking: No. 2
Overall ranking: No. 20
Value: $42,231 (in millions, or $42.2 billion)
Starbucks struggled to generate traffic and same-store sales a bit this past year. The java giant’s Q3 1 percent global comps were the lowest in a decade. That was after back-to-back 2 percent quarters to start the year. But Starbucks rebounded in a big way in Q4, posting same-store sales gains of 4 percent in the U.S. and Americas and 3 percent globally. This coming year promises to be an eventful one. Starbucks announced at its biennial Investor Conference December 13 that several key initiatives are in the works. Among them: delivery to 2,000 locations, nitro expanded across the U.S. system, and remodels to one-third of its store base over the next two years. There’s also the $7.15 billion Global Coffee Alliance with Nestlé to consider, updates to Starbucks’ digital flywheel, and the continued evolution of its Siren retail business. All in all, don’t blink in 2019.
Subway
Fast-food ranking: No. 3
Overall ranking: No. 42
Value: $18,691 (in millions, or $18.7 billion)
The world’s largest restaurant chain has made a host of changes lately. But first on the size. Subway had nearly 12,000 more domestic units than McDonald’s at the end of 2017, which remains a staggering figure. The chain has been retracting its footprint significantly in recent years, however.
It looks something like this:
2009-2010: 816
2010-11: 872
2011-12: 956
2012-13: 878
2013-14: 778
2014-15: 145
2015-16: -359
2016-17: -866
Lately, though, Subway has enjoyed some positive press from its Fresh Forward remodel, which generated a gross profit lift of 11 percent and increased traffic around 8 percent in remodeled units. Subway’s app has also been pushing serious performance marks—about 25 percent month-over-month user growth following its May redesign. Subway also recently introduced Ultimate Cheesy Garlic Bread and has, this year alone, launched a Signature Wraps menu and New Chipotle Cheesesteak on Sunflower Crunch Bread, which was available for a limited time, as well as a groundbreaking partnership with Tastemade.
KFC
Fast-food ranking: No. 4
Overall ranking: No. 50
Value: $15,757 (in millions, or $15.8 billion)
Among the fast-food chains in this year’s BrandZ rankings, YUM!’s chicken giant represented the fastest growing, up 22 percent. KFC, like some other legacy chains, saw its market share erode a bit during the aforementioned fast-casual boom. In addition to the notion that fast casual is halting its explosion to a degree, quick-serves have regained much of this lost share thanks to scale and leverage, and KFC is no different. A renewed focus on its heritage and smart digital campaigns have put KFC back on the front foot. The zany marketing strategy and continual offbeat promotions (a fried-chicken scented firelog?) keep KFC in the national discussion. “As we started this brand turnaround, we really went back and started with, What’s the DNA of KFC? And what’s our brand positioning? And how do we bring this great, iconic brand to life in the U.S.?” Brian Cahoe, chief development officer at KFC, told QSR last year. “That’s the lens that we’ve taken everything through in this journey.”
Longtime YUM! employee Roger Eaton, who spent more than 20 years with the parent of Pizza Hut, KFC, and Taco Bell, retired at year’s end. He led KFC globally since 2014. In September, the company announced that Tony Lowings, 60, was being promoted to KFC Division chief executive officer. Lowings, previously president and COO of KFC Division, is now responsible for driving brand strategy and performance of the chain, which posted more than $24 billion in global system sales across 21,000-plus restaurants in more than 130 countries as of year-end 2017. In Q3 of fiscal 2018, KFC’s system sales boosted 7 percent and its same-store sales lifted 3 percent across its system as it upped the net unit count by 5 percent. There were 22,104 restaurants as of September 30—up from 21,063 in the prior-year period. Comps hiked 1 percent in the U.S. and 3 percent international. One value-bolstering fact at KFC is its international strength. Twenty-seven percent of its system sales occur in China. That market saw a 6 percent system sales bump in Q3 and appears poised to accelerate. In the Asia market not including China, KFC’s sales increased 7 percent and are up 5 percent year-to-date. That market represents 12 percent of sales (the U.S. is 18 percent).
Domino’s
Fast-food ranking: No. 5
Overall ranking: No. 77
Value: $8,281 (in millions, or $8.3 billion)
Domino’s enjoyed another red-hot year. Here’s one stat to paint just how strong the pizza chain has been in recent quarters: In October, when the brand shared its Q3 results, CEO Ritch Allison, who took over for longtime leader J. Patrick Doyle this past summer, said Domino’s closed just seven U.S. stores the entire year. Meanwhile, it opened 140. Shuttering less than 10 units in a 5,751-unit domestic footprint over that timespan is unheard of. It doesn’t hurt that Domino’s and its franchisees are stringing together month after month of positive sales. Domino’s posted domestic same-store sales growth of 6.3 percent in Q3, marking the 30th consecutive quarter of positive comps growth. Internationally, same-store sales lifted 3.3 percent, making it a ridiculous 99 straight quarters of positive gains. Revenue was $785.97 million, up from last year’s $643.64 million Q3 figure. But let’s return to the growth note. Domino’s has been on an expansion tear in the last six years:
2012: 513
2013: 631
2014: 743
2015: 901
2016: 1,281
2017: 1,045
That comes to 5,114 restaurants added since 2012.
And take a look at Domino’s delivery dollar share in that span:
2011: 21.9 percent
2012: 22 percent
2013: 23 percent
2014: 24.4 percent
2015: 26.7 percent
2016: 27.2 percent
2017: 29.3 percent
In 2017, Domino’s said it had 17 percent of the total quick-service pizza market share. Other major pizza chains accounted for 31 percent, and regional chains and independents made up 52 percent.
“One of the great things about this segment of the [quick-service restaurant] industry is that, we as the market leader, still only sell about one in six pizzas that are sold in the U.S. and only about one in 15 that are sold outside the U.S. So I think there is significant headroom for market share growth,” Allison said.
What this all equates to is a pretty scary prospect for Domino’s competitors. The chain has a 10-year goal of hitting 8,000 U.S. stores. Globally, it believes there’s potential for an additional 5,300 restaurants in the top 15 markets alone.
Here’s how that growth opportunity unfolds with current stores next to Domino’s projected potential, as shared by the company:
Developed markets:
U.K./Ireland: 1,116 current/1,675 potential
Australia/New Zealand: 819/1,200
Japan: 520/850
Canada: 483/700
South Korea: 443/500
France: 379/1,000
Netherlands: 255/400
Spain: 255/350
German: 213/1,000
Emerging Markets
India: 1,144/1,800
Mexico: 718/1,025
Turkey: 521/900
Saudi Arabia: 243/450
Malaysia: 218/450
Brazil: 217/500
So if you add that up with the U.S. projection, Domino’s forecasts potential for 15,049 additional restaurants, amounting to a 30,000-plus-location restaurant company.
Pizza Hut
Fast-food ranking: No. 6
Overall ranking: No. 85
Value: $7,480 (in millions, or $7.5 billion)
This past year was a very interesting one for Pizza Hut. In some ways, it was an underwhelming 12 months, with Artie Starrs, president of Pizza Hut U.S., saying he was “extremely dissatisfied” with the chain’s performance at YUM!’s investor day in December. The main issues at hand: dine-in assets and lack of delivery awareness. Pizza Hut’s $130 million transformation plan remains a slow grind. In Q3, Pizza Hut’s sales crawled 1 percent internationally, year-over-year, and declined 1 percent in the U.S. Its comps fell 3 percent internationally and climbed a point stateside to get to positive 2 percent year-to-date. Pizza Hut is tackling these issues from several angles. Notably, YUM! said Pizza Hut’s international dine-in assets would be cut to about 25 percent in the next three to five years from 42 percent. The U.S. is going to see a comparable change. At this point, 90 percent of new units are built to the “Delco” model, which is a smaller layout with a lower investment point geared toward delivery and carryout. About half of Pizza Hut’s sales are coming from dine-in globally, CEO Greg Creed said in October. Dine-in business is down to less than 10 percent of U.S. sales at Pizza Hut.
On the other note, Pizza Hut announced what it called one of its biggest acquisitions ever (it didn’t provide exact figures) last month. The company bought ordering provider QuikOrder, a platform founded in 1997 that has worked with Pizza Hut for close to two decades. Pizza said the deal, announced December 4, would improve its ability to deliver “an easy and personalized online ordering experience and accelerate digital innovation across its base of more than 6,000 restaurants in the U.S.” In 2018, about half of its U.S. sales were processed through QuikOrder’s platform. The online order ordering software and service provider specializes in developing and maintaining internet-ordering systems used across quick service. Pizza Hut added that QuickOrder built an expert team curated to meet Pizza Hut’s needs over the past 20 years. The acquisition will include: Pizza Hut’s current digital ordering platforms, systems and services and QuikOrder’s in-restaurant technology and ancillary services, as well as its future generation products and programming.
Burger King
Fast-food ranking: No. 7
Overall ranking: No. 94
Value: $6,642 (in millions, or $6.6 billion)
Behind KFC, Burger King saw the biggest year-over-year jump in the value rankings, up 20 percent from last year. You can draw some similarities between the two as well. Both are legacy brands. Both are propelling forward thanks to stellar digital campaigns and heritage-based, yet evolved marketing. Take a recent promotion for example. Burger King offered a “Whopper Detour” for 1 cent. Basically, customers needed to drive or walk to a nearby McDonald’s and then use Burger King’s revamped app to unlock the deal. Burger King used geofencing around McDonald’s locations nationwide in an effort to showcase its new order-ahead functions and app platform.
Other innovative promotions in recent months included a Dogpper, a dog bone with flame-grilled flavor that spotlighted its heighted delivery efforts (Burger King’s delivery program, which kicked into gear this past April with tests at “hundreds of restaurants,” is now live in 2,000 North America units, and delivery is available in more than 5,000 Burger Kings globally) and a Whopper Shopper site launched on Black Friday to give guests a chance to shop and earn credit toward a free Whopper. Burger King also introduced a $6 King Box in December. Let’s not forget the green Nightmare King for Halloween.
Beyond these buzzy promotions, however, Burger King is making broad changes that will shape the chain long-term. In October, Burger King’s announced its plans to introduce a modern “Burger King of Tomorrow” restaurant image across the U.S. This came as same-store sales increased 1 percent in Q3, which marked the third straight quarter of decelerated results following a Q1 performance of 3.8 percent and 1.8 percent in Q2. CEO Daniel Schwartz said the new image “contemplates upgrading our restaurants to our most recent Garden Grill design.” The model has demonstrated strong benefits in guest satisfaction and dine-in comparable sales, Schwartz added. At the end of 2017, Burger King had 7,226 restaurants in the U.S. There are 17,239 total. Given the importance of the drive thru at Burger King (the brand was No. 1 in speed of service in this year’s QSR Drive-Thru Study at 193.31 seconds), Schwartz said the new designs are also going to include exterior, guest-facing enhancements, like the construction of double drive-thru lanes, and outdoor digital menuboards. The image is also focused on building a digitally integrated experience for guests. This includes the implementation of outdoor digital menuboards and in-restaurant self-order kiosks.
“We’re just getting started now,” Schwartz said. “We have a pilot of this in our Miami company restaurants. As you know, we upgraded together with the restaurant owners, a significant portion of the system over the last eight years. What we can say about this is it’s the next evolution of our image. We have a pretty significant focus on technology. We’re going to have double drive thrus. Outdoor digital menuboards. Kiosks. Internally, a more open kitchen, giving the full kitchen theater experience, and some other exciting features.”
Chipotle
Fast-food ranking: No. 8
Overall ranking: No. 100
Value: $5,898 (in millions, or $5.9 billion)
It’s been quite a ride for Chipotle in 2018. The center of this transformational year, of course, was the blockbuster hire of Taco Bell chief Brian Niccol in March. Niccol’s addition reenergized stock market sentiment immediately. And the major changes have followed. Headed into the fast casual’s Q3 report in October, Chipotle’s shares grew 47 percent since the beginning of the year. In Q3, the chain nearly doubled its earnings per share and expanded restaurant margins to 18.7 percent from 16.1 percent. Same-store sales rose 4.4 percent, year-over-year, and revenue upped 8.6 percent to $1.2 billion. But talking on a broader basis, Chipotle has some key long-term moves in place. Chipotle’s digital sales boomed 48 percent in Q3 and now account for 11.2 percent of total sales. By October, the brand’s new digitalized second make-lines were in nearly 750 restaurants, and are on track to reach every unit in the 2,463-unit system by the end of 2019. That’s roughly a 250 restaurant lift from last quarter, and Chipotle is well on its way to the 1,000 it previously set as a 2018 target. Digital pick-up shelves, which first tested in New York City, were live in about 350 restaurants. Niccol said Chipotle would bring those systemwide by the middle of 2019. Downloads of its app increased 25 percent in the last quarter.
Yet, as all these changes were taking hold, Niccol continued to note that Chipotle’s biggest issue remains on the accessibility front. He said the brand is at less than 50 percent awareness on its digital platforms and needs “to improve that dramatically.”
“We continue to hear that the No. 1 reason that consumers eat elsewhere is because they don’t have convenient access to Chipotle,” Niccol said.
Other widespread changes include: piloting a loyalty app, tapping Zeput for a new food-safety platform, launching direct delivery and expanding third-party reach, installing digital pick-up shelves, testing new menu items, adding second make-lines in hundreds of restaurants, moving HQ to Southern California, and launching a new marketing campaign and tagline that highlights its ingredient-driven mission.
All in all, 2019 holds a lot of promise for Chipotle, which is something you haven’t been able to say in some time.
