Chick-fil-A's American takeover should terrify Wendy's and Burger King

Business Insider

Kate Taylor

Aug 07, 2019

As Chick-fil-A expands, other chains are feeling the pressure.

When the chicken chain opens a new location, foot traffic at McDonald's, Wendy's, and Burger King restaurants in the area drops, according to a Gordon Haskett report that analyzed geolocation data from millions of mobile devices, collected by Alpha Hat.

In the first six months after a Chick-fil-A opens, customer traffic falls an average of 5.4% at Wendy's and 4.4% at Burger King locations within 1.5 miles of the new restaurant. Nearby McDonald's locations see traffic fall an average of 1.5% in the short term.

In the second six months, traffic declines tend to improve, with Wendy's down 0.4% and McDonald's down 0.5% on average. However, Burger King's traffic continues to seriously suffer, according to Gordon Haskett's analysis, with traffic falling 3.4% on average in the second six months after a Chick-fil-A opens in the area.

"Chick-fil-A is increasingly becoming a key investment thesis point for investors looking at the domestic [same-store sales] trends across the quick service segment, and especially for the hamburger players," Gordon Haskett analyst Jeff Farmer writes.

Farmer notes that Chick-fil-A is one of the few quick-service chains in the US with an annual growth rate in the high-single digits.

Additionally, Farmer notes Chick-fil-A's average unit volumes are the best in the industry, with the average location making $4.6 million a year. For comparison, Burger King's average unit volume is $1.4 million and McDonald's is $2.8 million.

Chick-fil-A has been steadily expanding across the US in recent years, with plans to open its first store in Canada in Toronto before the end of 2019.

The company has paired its expansion with same-store sales growth, allowing Chick-fil-A to become the third-largest restaurant in the US by systemwide sales in 2018.