The chicken sandwich emporium Chick-fil-A has become one of the best-loved and most popular restaurant brands in America.
Chick-fil-A was named the number one restaurant brand in America for six straight years in the 2020 American Customer Satisfaction Index. A half-million customers gave Chick-fil-A the highest ratings in categories such as food quality, accuracy, speed of service, and mobile-app reliability.
Chick-Fil-A received the highest score, 84 out of 100 in the American Customer Satisfaction Index. According to Forbes, Chick-fil-A received four more points than its closest rival; Chipotle (CMG). Chick-Fil-A’s Index rating even exceeds that of the best full-service restaurant chain, LongHorn Steakhouse.
The total value of Chick-fil-A stock is estimated at $4.5 Billion, and the shares are divided amongst the three sons of the founder Samuel Truett-Cathy. Chick-fil-A has no stock symbol/ticker; it is not on the stock market because it is a privately held company. It is possible to share in the success of Chick-fil-A through a franchise or merchandising.
It is easy to see why investors are interested in Chick-fil-A. Yet Chick-fil-A offers no stock and has no plans for an IPO anytime soon. Chick-fil-A founder S. Truett Cathy wanted to keep total control of his company. Cathy was a devout Christian who feared going public could force Chick-fil-A’s management to make decisions that violated his faith. Cathy’s heirs are family members who share his faith and want to follow Truett’s wishes.
Why Chick-fil-A’s Has No Stock Symbol
If Chick-fil-A became a publicly-traded company, outsiders that do not share the Cathy family’s beliefs could take control by buying stock. The family fears that new shareholders could influence the company’s running, which might not align with the founder’s Christian values; new managers could open Chick-fil-A stores on Sunday, for instance.
Chick-fil-A’s Stock Price
Chick-fil-A is not currently floated on a stock exchange, so it does not have an official stock price for public investors. However, the company is reported to be worth $4.5 billion. The current stock is divided among the three sons of the founder Samuel Truett Cathy, meaning each share of the business is worth $1.5 billion.
Will Chick-fil-A Be Publicly Traded on the Stock Market?
Chick-fil-A could easily go public, netting the current shareholders a fortune, because the company’s profits and brand are in great shape. The Cary family could sell out, or events could force Chick-fil-A to hold an IPO at some point. For example, further lengthy Covid-19 lockdowns could adversely impact the company’s debt, and it could seek funding through an IPO.
However, A Chick-fil-A IPO is improbable under current circumstances.
An initial public offering (IPO) can bring new management to Chick-fil-A that could change its lucrative business model. Chick-fil-A is in a position to borrow enormous amounts of money to pay for expansion without an IPO.
Chick-fil-A’s Company Performance
Chick-fil-A’s sales are over 50% higher than McDonald’s (MCD) sales, Forbes contributor Alicia Kelso claims. Chick-fil-A’s sales grew by 13% between 2019 and 2020, Restaurant Business claims. Chick-fil-A reported $11.32 billion in sales in 2019.
Chick-fil-A overtook Subway and Yum Brands’ subsidiary (YUM) Taco Bell to become America’s third-largest fast-food chain in 2018. Chick-fil-A operated 2,470 restaurants in the United States in 2019.
Americans love Chick-fil-A. In 38 US states, Chick-fil-A’s stores report the highest foot traffic in the fast-food industry.
Chick-fil-A became the biggest threat to McDonald’s in the fast-food industry in 2018, Restaurant Business’s Jonathan Maze declared. Maze thinks Chick-fil-A is a greater threat to McDonald’s than rival burger chains Wendy’s (NASDAQ: WEN) and Burger King. Waze also believes Chick-fil-A is a greater threat to McDonald’s than Yum Brands (YUM), the owner of Kentucky Fried Chicken or KFC, and Taco Bell.
Maze does not think Chick-fil-A will not take McDonald’s place as America’s fast-food leader anytime soon. McDonald’s (NYSE: MCD) is so big it could take Chick-fil-A 21 years to surpass it at the 14.2% 2018 growth rate.
Maze believes Chick-fil-A threatens McDonald’s because it targets the family market. Maze notes that Chick-fil-A achieved a 13% growth rate without resorting to the massive discounts at McDonald’s, Subway, Taco Bell, Kentucky Fried Chicken, and Burger King.
The average Chick-fil-A location generated around $4.09 million in sales in 2017, Entrepreneur estimates. The typical McDonald’s store generated around $2.67 million in sales in 2017, in contrast. Chick-fil-A’s average store income was $1.7 million greater than the next-most profitable fast-food brand, Whataburger, Bullishbears claims.
A typical Starbucks (SBUX) coffee shop generated $945,270 in sales in 2017. The average Subway sandwich shop generated $416,860 in sales in 2017. A typical Chick-fil-A store’s revenues are almost four times greater than the ordinary Subway franchise.
Why Chick-fil-A Makes So Much Money
Chick-fil-A makes more money because it charges more for its higher quality food. A Chick-fil-A sandwich costs $6 in many areas.
McDonald’s, in contrast, relies heavily on its Dollar Menu while Burger King advertises two-for-one deals. Many Subway franchise operators complain they cannot make money because of the company’s deep discounts.
Chick-fil-A generates enormous amounts of money by refusing to engage in standard fast-food industry practices. I think Chick-fil-A could be immune to some of the problems afflicting the fast-food industry because of its unique business model.
Chick-fil-A could afford to pay higher wages and comply with $15 an hour minimum wage requirements because it makes more money. Many American communities are requiring a $15 an hour minimum wage for all workers.
Some fast-food operators, including McDonald’s, are facing pressure to unionize because of low wages and poor working conditions. Chick-fil-A can reduce unions’ appeal with better working conditions and higher wages.
Why Chick-fil-A closes on Sunday
Chick-fil-A stores famously close on Sunday because Cathy believed operating on Sunday violated his faith. Most American fast-food restaurants operate on Sunday.
Closing on Sunday reduces Chick-fil-A’s expenses and can attract many customers. Pew Research classifies 25.4% of Americans as Evangelical Christians. Many Evangelical Christians believe working on Sunday is sinful.
Many Americans do not share the Cathy Family’s beliefs. Pew classifies 22.8% of Americans as religiously unaffiliated, 3.1% of Americans as atheists, 4% of Americans as agnostics, and 15.8% of Americans describing their faith as “nothing in particular.” I classify 45.7% of Americans as secular or non-religious by adding Pew’s numbers together.
Chick-fil-A’s growth shows most Americans do not care about fast-food operators’ faith. Chick-fil-A has run into opposition in some areas because of the Cathy family’s reputed hostility to gay people. Current Chick-fil-A Chairman Dan Cathy has expressed opposition to same-sex marriage.
Sunday closure can help Chick-fil-A attract higher quality employees by guaranteeing workers one day off a week, Entrepreneur writer Matthew McCreary speculates. Closing on Sunday could create cravings that send hungry people to Chick-fil-A’s-drive-through on Monday.
5 Ways to Invest in Chick-fil-A Stock
Chick-fil-A is not a realistic direct stock investment because the stock is not available publicly. But there are 5 ways you can invest in the success of Chick-fil-A; you can open a Chick-fil-A franchise or invest in any of its 4 main competitors.
That means you will need to look for similar companies to Chick-fil-A. There are some publicly traded companies with similarities to Chick-fil-A.
1. Buy A Chick-fil-A Franchise
Until they offer a Chick-fil-a stock, you can buy a Chick-fil-A franchise for $10,000 ($15,000 in Canada).
A Chick-fil-A franchise is attractive because the company covers all the startup costs. It buys the real estate, constructs the building, and finances the equipment. In contrast, it costs $1 million to start a McDonald’s and $4 million to open a Culver’s restaurant.
A Chick-fil-A franchise is incredibly profitable, but franchisees receive no equity in the company. Chick-fil-A restricts franchises to owning just one restaurant to maintain central control over the company. Thus, Chick-fil-A discourages the purchase of its restaurants by investors and speculators.
It is hard to buy a Chick-fil-A franchise. Business Insider claims Chick-fil-A receives 20,000 franchisee applications a year and accepts only 70 to 80. Chick-fil-A approves only 0.4% of franchise applicants, Entrepreneur claims.
2. Buy Shake Shack (NYSE: SHAK)
The closest American company to Chick-fil-A is California’s In-N-Out Burger. In-N-Out Burger only sells a few products; burgers, shakes, and fries, just as Chick-fil-A only sells chicken sandwiches.
By concentrating on a few products, In-N-Out Burger achieves a high level of quality. The high quality allows In-N-Out-Burger to sell burgers and fries at a high price. In-Out-Out-Burger has a cult-like following that rivals Chick-fil-A’s. In-N-Out Burger always appears among the American fast-food restaurants with the highest ratings for service.
Like Chick-fil-A, the founder’s family still operates In-N-Out-Burger. The current owner is Lynsi Snyder, the granddaughter of founders Ester and Harry Snyder.
In-Out-Burger is even more tightly-held than Chick-fil-A – it does not sell franchises. Moreover, In-Out-Burger is privately held, so you cannot buy stock in it.
Unlike most fast-food brands, In-Out-Burger has rejected national and international expansion. They only operate 358 In-Out-Burger locations in six Western states.
Shake Shack (NYSE: SHAK), a New York-based company that stole In-N-Out-Burger’s plan, is publicly traded. Both In-N-Out-Burger and Shake Shack are modern variations of a classic roadside burger stand.
Both chains emphasize high quality and have loyal customer bases. The difference is In-N-Out concentrates on drive-in customers while Shake Shack operates many urban locations.
Shake Shack is expanding throughout the United States and to the United Kingdom. In-N-Out Burger is also expanding into a few new states. In-N-Burger and Shake Shack could compete in Colorado, where both chains are opening restaurants.
Shake Shack (SHAK) loses money. It reported a quarterly operating loss of -$24.07 million on June 30, 2020. Shake Shack reported a quarterly gross profit of just $4.2 million on June 30, 2020.
Shake Shack can generate cash; it reported a quarterly operating cash flow of $10.51 million and a quarterly ending cash flow of $86.18 million on June 30, 2020. Shake Shack borrows money to finance its operations. It reported a quarterly financing cash flow of $94.22 million on June 30, 2020.
Shake Shack stock is too risky and unproven for ordinary people to rely on. However, there are other high-quality fast-food stocks with histories of making money.
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3. Buy Chipotle Mexican Grill (CMG)
Writers credit Chipotle Mexican Grill (NYSE: CMG) with creating the popular fast-casual dining concept.
Chipotle copies Chick-fil-A’s business model of sticking to high ethical standards, selling only a few high-quality products, and charging higher prices for its products. Like Chick-fil-A, Chipotle concentrates on two specialty products: burritos and tacos.
Both the Chipotle and Chick-fil-A management teams try to follow high ethical standards. Chipotle only uses natural ingredients and meat from ethically-raised animals such as free-range pigs and chickens. Chick-fil-A closes on Sundays and pays its employees higher wages. Chipotle offers higher wages and English classes for Spanish-speaking employees.
Chipotle (CMG) has experienced enormous success. It now operates over 2,000 locations in the United States, Canada, Germany, and France.
Investors love Chipotle; they paid over $1,000 for its shares in 2020. Unlike Shake Shack, Chipotle can make money. Chipotle reported an annual operating income of $443.96 million and an annual gross profit of $1.142 billion for 2019.
Chipotle generates cash; it reported a quarterly ending cash flow of $508.48 million and an operating cash flow of $721.63 million on June 30, 2020. Chipotle is generating cash during the coronavirus pandemic.
Chipotle can survive coronavirus because most of its business is take out. Most Chipotle customers take their burritos and tacos home or to the office to eat.
Chipotle targets one of Chick-fil-A’s key markets: families. Many families buy Chipotle burritos as their weekly takeout meal.
Chipotle has had some serious problems, including charges that its food is more prone to contamination from bacteria and viruses. In December 2015, health inspectors closed a Seattle Chipotle because of food-safety violations. Outbreaks of serious infections have been reported at Chipotle locations in several U.S. states.
Chipotle is a poor investment for ordinary people because it pays no dividend. Investors need to avoid Chipotle because Mr. Market grossly overprices its stock.
4. Buy McDonald’s (NYSE: MCD)
The original fast-food giant McDonald’s (MCD) is still a lucrative company. McDonald’s reported $11.115 billion in annual gross profits, $21.077 billion in annual revenues, and an annual operating income of $9.07 billion on December 31, 2020.
McDonald’s founder Ray Kroc created the franchising model that powers Chick-fil-A’s expansion. The McDonald’s corporation carefully chooses franchisees and owns the restaurants, real estate, and equipment.
That franchising strategy gives McDonald’s enormous amounts of assets it can borrow against – in the form of land. This business model allows McDonald’s and Chick-fil-A to pick the franchises most likely to succeed. Kroc’s franchising strategy allows both McDonald’s and Chick-fil-A to fire bad or incompetent franchisees fast.
This allows McDonald’s to put experienced fast-food managers; and people who are willing to devote all their time and effort to managing the franchise in charge of its stores. Chick-fil-A uses the same strategy to ensure high-quality franchisees.
McDonald’s is enormous; it operated and franchised 38,695 worldwide in 2019, Statista estimates. McDonald’s restaurant footprint has been growing for the last 13 years.
Most of McDonald’s sales growth has occurred outside the United States. McDonald’s U.S. revenues and sales have fallen for several years.
McDonald’s is having difficulty competing in the United States because many Americans view its food as cheap and low-quality. Many middle and upper-class Americans refuse to eat at McDonald’s because they view it as a restaurant for poor people.
Skeptical analysts think deep discounting, and specials drive McDonald’s American sales. McDonald’s faces enormous competition from fast-casual and high-quality restaurant chains such as Chick-fil-A, In-N-Out Burger, Chipotle, and Shake Shack.
Another problem for McDonald’s is that the focus of fast-food is changing from a quick lunch for factories and office workers to takeout food. Many customers want a complete meal for the whole family, such as a pizza or Chipotle burritos.
Another trend that hurts McDonald’s is the demand for ethical food that matches’ diners values. Chipotle’s ethical meats and Chick-fil-A’s Sunday closures are value signals that allow those chains to charge higher prices.
McDonald’s has a reputation as an unethical company that treats employees and customers poorly and serves cheap, tasteless, and unhealthy food. This reputation is undeserved but widespread.
McDonald’s is a good value investment because it is a proven moneymaker that pays a high dividend. McDonald’s will pay a quarterly dividend of $1.29 on November 30, 2020. Dividend.com credits McDonald’s with 12 years of dividend growth.
5. Buy Domino’s Pizza (NYSE: DPZ)
Domino’s (DPZ) is America’s most-successful standalone pizza chain with 17,100 franchises in over 90 countries in 2020. Domino’s operated 6,126 stores in the United States in 2019, Statista estimates.
Domino’s follows Chick-fil-A’s strategy of concentrating on one food: pizza. Domino’s is successful because it specializes in takeout and delivery.
Domino’s has grown fast as women stopped cooking and went to work. Domino’s is in a position to cash in coronavirus because it can deliver hot food (pizzas) that nobody but the cook touches to customers’ doors.
Parents who have to spend all their time remote working and educating kids can order a pizza to avoid cooking. Pizza is popular because it is one food most kids will eat. Domino’s competes with Chick-fil-A in the family dining market.
Domino’s makes money; it reported an annual operating income of $629.41 million and a gross profit of $1.403 billion on December 31, 2019. Domino’s reported an annual operating cash flow of $496.96 million and an annual ending cash flow of $438.92 million on December 31, 2019.
Mr. Market often overprices Domino’s stock. Its shares have traded at prices of up to $400 in 2020.
However, Domino’s can be a good stock for investors because it pays a quarterly dividend. Domino’s only experienced only one year of dividend growth between 2020 and 2019.
Chick-fil-A Stock Summary
Chick-fil-A’s success shows that the American restaurant and fast-food markets are experiencing dramatic change. The restaurant business is centralizing around large national brands and chains.
Customers are demanding higher quality and service levels, better and healthier ingredients, delivery, and faster service. Many diners are also demanding food that reflects their values.
Chick-fil-A embodies all these trends. A tightly-controlled and centralized national organization makes all the decisions. Chick-fil-A sells high-quality food and offers a high level of service. Chick-fil-A, like Chipotle, enforces a rigid system of values that reflects its owners’ beliefs.
Both Chick-fil-A and Chipotle make money by charging higher prices for higher quality foods. Both chains feature simple menus that focus on a few popular menu items.
You can argue that Chick-fil-A could be the future of fast food. Identifying restaurants similar to Chick-fil-A could help investors make money.
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