Text size

A quickly growing Chick-Fil-A might threaten some of the other players in the fast-food restaurant industry over the coming years, according to Gregory Francfort of Bank of America Merrill Lynch. And that includes McDonald’s (MCD).

Chick-Fil-A, founded in 1946 in Atlanta and still private under the control of founder Samuel Cathy’s family, is one of the largest chicken-focused quick service restaurant chains in the U.S.—and growing fast. The chain sold about $10.7 billion worth of food last year, according to Bank of America estimates. That’s about 9% of the total revenue for the 27 largest burger, chicken and sandwich chains in the U.S., up from the 4% share eight years ago.

From 2010 to 2018, Chick-Fil-A has increased its revenue at a 15% annual rate, while the whole industry only grew by 3.4%. The chain has opened more new stores, while maintaining high-single-digit growth in per-store sales at the same time. In 2018, Chick-Fil-A had an average of $4.7 million sales per store, well above the $2.8 million for McDonald’s and $1.3 to $1.8 million for most other peers.

An expanding Chick-Fil-A has been mostly eating up Subway’s business over the past decade, as Subway’s market share has decreased from 12% to 8% since 2010. If the chicken-sandwich chain continues to get bigger, however, it would likely step into the space of other rivals in the coming years, Francfort wrote in a Friday note. He expects Chick-Fil-A to reach a 15% industry share by 2025, up from the current 9%.

Fast-food giant McDonald’s, with about one third of the industry’s total sales, has been closing stores over the past few years amid the effort to restructure its operation and improve margins. Revenue continues to grow, but it is mostly driven by higher menu prices. Foot traffic at its domestic locations has been weakening, with comparable guest counts at locations open for at least 13 months declining 2.2% in 2018 from the previous year.

Still, Francfort thinks the Golden Arches will return to a stronger growth over the next few years, with more new stores and higher same-store sales. If that’s the case, smaller brands like Restaurant Brands International’s (QSR) Burger King, Wendy’s (WEN), and Jack in the Box (JACK) are likely to get squeezed even more by Chick-Fil-A’s growth, wrote Francfort.

Brands in certain states where Chick-Fil-A has an especially strong presence or rapid growth, such as Delaware, Texas and Georgia, will also see a more severe impact from Chick-Fil-A. Jack in the Box, for example, has 27% of its stores in Texas and will likely experience more pressure in its regional sales, according to Francfort.

Write to Evie Liu at evie.liu@barrons.com