Global Restaurants – Value-focused Strategies to Reignite Growth
Lacklustre results amid base effects from price hikes. Global fast food chain operators have reported disappointing results so far in 2024 and this is primarily due to base effects from successive pr...
Chief Investment Office - Hong Kong4 Jul 2024
  • Restaurant operators target revival of store traffic through attractive value deals to attract inflation-weary consumers
  • Margin contraction imminent as companies prioritise reclaiming or defending market shares
  • Key catalysts include acceleration of store openings – especially in international markets – to deliver better-than-expected growth, and rebasing effect from the US’s operations
  • China markets reflect intense competition, particularly in the coffee and fast-food categories where profitability appears most apparent
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Lacklustre results amid base effects from price hikes. Global fast food chain operators have reported disappointing results so far in 2024 and this is primarily due to base effects from successive price hikes amid rising inflationary pressures from labour and ingredient costs. Consequently, this has resulted in consumers cutting back on fast-food spending.

According to United States Department of Agriculture (USDA), the 4M24 US CPI on food-away-from-home (restaurant purchases) grew at 2.8% y/y, outpacing overall food CPI growth of 1.5% y/y. Overall, food price growth in the US is expected to decelerate in 2024, with food-at-home prices growth predicted to moderate to 1.2% y/y (2023: +5.8% y/y), and food-away-from-home to 4.2% y/y (2023: +7.1% y/y).

Rekindling interest amongst inflation-weary consumers. In a strategic move to revitalise in-store traffic, fast food players have launched value meals in an attempt to entice cost-conscious customers. For instance, Burger King’s USD5 meals include a choice of one sandwich from three options, along with nuggets, fries, and a drink, while Wendy’s is offering a USD3 value breakfast meal which includes small-sized seasoned potatoes and a choice between two English muffins with protein. Additionally, Wendy’s also provides USD5/USD6 value meals for lunch/dinner sets. McDonald’s has similarly launched USD5 value meal that includes four items – such as a burger, chicken nuggets, fries, and a drink – for a limited time.

As companies prioritise on reclaiming or defending market shares in 2024, margin contraction is likely. Other key initiatives include store expansion, cost-saving strategies through digitalisation, and international growth plans to offset moderating growth in their key markets.

China’s cut-throat competition unlikely to ease up. China’s restaurant industry, previously a strong growth driver for US players such as Yum! and Starbucks, has evolved into a complex market. While China’s restaurant spending per capita possesses tremendous growth potential, price competition in this space is nonetheless extremely intense. Indeed, negative same-store sales (SSS) growth can be observed across Yum China (9987 HK) (-3% y/y) and Starbucks (SBUX US) (-11% y/y in China) in the latest quarter. Luckin Coffee (LKNCY US) also reported a 20.8% decline in SSS and this highlights the same challenges facing the industry across the board.

In response to the challenging macro-economic environment, players focus on expanding their presence in lower tier cities through franchising. Following a strong year of operating leverage in 2023 after China’s reopening, margin contraction is on the cards in view of marketing and promotion initiatives.


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