Pizza, Sandwiches, Burgers, and Fried Fish Still Hot
IT'S summer - and a number of fast-food restaurants are sizzling. Just about everyone knows that on a typical Friday or Saturday night about this time of the year, the local McDonald's is packed, as families flee overheated houses and apartments for free air-conditioning, a fairly inexpensive Big Mac or Fish Filet, and a soft drink and fries.
But McDonald's isn't alone as a gathering point for the summer exodus to the local fast-food hangout. Ask the folks at Shoney's, Sbarro (an Italian restaurant), Long John Silver's, or the local Sizzler steakhouse.
The overall outlook for the fast-food segment of the restaurant industry is promising, industry experts say, despite a pell-mell expansion last year in terms of new outlets around the United States. That growth in new fast-food units has created an overcapacity problem for some chains, as well as a decline in real sales per restaurant for the industry as a whole. But for many fast-food chains, the expectation is still modest-to-solid growth.
Sales for a number of chains were up in May from more dismal April figures, according to Leslie Steppel, an analyst with Prudential-Bache Securities. One reason: new products, such as McDonald's introduction of its ``Country-style McChicken.''
``Demand in the quick-service, limited-menu segment of the industry should continue to grow faster than overall industry demand,'' predicts Laurie Lively, an analyst with Oppenheimer & Co. Inc.
Ms. Lively notes that sales for the entire restaurant industry rose only about 2 percent last year. But sales for franchised fast-food restaurants increased 6.2 percent.
Americans are eating out more often, Lively says. The US Department of Commerce reports that sales at eating and drinking places have grown almost 3 percent annually during the last five years, reaching $157 billion last year. The market share of dollars spent on food eaten away from the home, moreover, has continued to swell - from 29 percent in the late 1970s, to 32 percent last year.
Much of the fastest growth in the quick-service sector is in the pizza and sandwich segment of the industry, as contrasted with the hamburger and fried-fish segment.
Yet overcapacity continues to be a problem. The upshot, according to Lively, is that starting in 1986 ``real average sales per restaurant began to decline and have declined each year since then.'' She figures that trend will continue this year.
Oppenheimer believes that expansion of new fast-food outlets will remain strong this year, increasing at least 9 percent from 1988 levels. The fastest growing chain among the top 15 chains, in terms of unit expansion, is Subway, a sandwich shop located heavily on the East Coast. Little Caesar's, Domino's, Arby's, and TCBY (a frozen-yogurt chain) are also expected to add a sizable number of new outlets this year.
Despite frequent newspaper stories about fierce competition between the big chains (such as Burger King and Wendy's), Oppenheimer sees good growth prospects for some fast-food stocks and recommends buying McDonald's, Shoney's, Sbarro, and is ``positive'' about Carl Karcher (a chain with a diversified menu, primarily in California) and National Pizza.
Oppenheimer notes that McDonald's is doing a first-rate job winning market share abroad. Thus, the company's overseas annual unit expansion rate is about 10 percent to 12 percent, more than double its 4 percent to 5 percent unit expansion rate in the United States. Last year the chain added 7,907 domestic units.
Ms. Lively, of Oppenheimer, also likes Marriott, which operates a number of fast-food outlets (Bob's Big Boy and Roy Rogers, for example), as well as hotel facilities.
The booming California market is not just a plus for a chain appealing to adults, such as Carl Karcher. Another chain, Sizzler, which trades over the counter, also benefits.
``Ten years ago Sizzler was positioned as a budget steak house,'' says Howard E. Hansen, an analyst with Kidder, Peabody & Co. ``Back then, the chain aimed itself at younger singles. But the chain has repositioned itself - going after dual-income families.''