Why the Big Mac Will Need to Fend Off KFC, Burritos

Big Mac Will Need to Fend Off KFCWhen consumer spending on fast foods slows, you have to take note. This is the case with McDonalds Corporation (NYSE/MCD), a bellwether for the fast food industry, after the maker of the “Big Mac” reported some recent stalling in its global same-store revenues. The stock fell after the news of the slowing, but it has since rallied after reporting a 2.4% rise in global comparable sales in November, which was a surprise…but a nice one.

My stock analysis is that McDonalds is feeling the impact from Europe, where the company derives about 40% of its system-wide revenues. Comparable sales in Europe increased a moderate 1.4% in November, which is not great, but given the financial crisis over there, the numbers were not bad, based on my stock analysis. Revenues in Asia-Pacific, the Middle East, and Africa edged 0.6% higher in November.

My stock analysis is that McDonalds has been the top performer in the restaurant sector over the past decade, following the dramatic shift in the company’s menu offerings to include healthy meals in hopes of broadening its target market. (Read about my favorites in the discount retail sector in “From Discount to Big Box: Some Retailers to Watch.”)

McDonalds Corp Chart


Chart courtesy of www.StockCharts.com

This strategic shift worked, as McDonalds is tops on the fast food chain at this point, leaving Burger King Worldwide, Inc. (NYSE/BKW) and The Wendys Company (NASDAQ/WEN) behind, according to my stock analysis.

Yet based on my stock analysis, there’s a growing list of rivals who all have targeted McDonalds as the company to emulate to try to take some of its market share.

In the key and growing fast food market in China, McDonalds operates about 1,500 stores (aiming for 2,000 by 2013); but my stock analysis is that the company faces tough competition from YUM! Brands, Inc. (NYSE/YUM)—the operator of well-known fast food outlets, such as Taco Bell, Kentucky Fried Chicken (KFC), and Pizza Hut. YUM! is hesitating on some slowing concerns.

YUM! Brands Inc Chart

Chart courtesy of www.StockCharts.com

YUM! has close to 4,500 restaurants spread across more than 700 cities in China, adding a record 656 in 2011, and planning to add another 600 this year and 700 in 2013, according to the company.

YUM! opened its first KFC in China in 1987 and currently operates about 3,700 KFCs in the country. The growth of KFC has been amazing, considering that the U.S. has about 5,200 KFCs; it looks like it will be just a matter of time before there will be more KFCs in China than in the U.S.. The Pizza Hut brand is growing in China, with about 630 restaurants in over 120 cities.

My stock analysis is that the Big Mac maker needs to be concerned with the strategy of Burger King, which announced it would open up 1,000 restaurants in China within five years.

In the U.S., my stock analysis is that McDonalds faces increasing competition from Chipotle Mexican Grill, Inc. (NYSE/CMG), which had been stellar, trading at a record $442.40 on April 13, before retrenching on growth concerns. Nonetheless, my stock analysis is that Chipotle is a real threat and a best stocks play that can’t be ignored by McDonalds and the Taco Bell unit of YUM!

Chipotle Mexican Grill Inc Chart

Chart courtesy of www.StockCharts.com

It looks like the next major fast food battleground will be in China and other emerging markets, based on my stock analysis.