Are New Menu Items Enough to Boost Fast Food Sales?
Fast-food restaurants are rapidly reengineering their menus in an effort to get sales going in the right direction. A number of headwinds have dealt blows to sales growth at McDonald's , Wendy's , and Burger King Worldwide , including higher payroll taxes and the still-soft job market in the United States.
These fast-food purveyors have rolled out a slew of new items and are seeing varying levels of success. Which of these stocks has the smoothest path ahead of it?
New items coming soon to a restaurant near you
Fast-food companies such as this are scrambling to introduce new products and adjust pricing policies to accommodate rapidly changing consumer preferences.
Since the U.S. economy continues to improve at such a frustratingly slow pace, consumers are still keeping a lid on discretionary spending. When they purchase fast food, they're increasingly selecting from the dollar menu. This has hurt fast-food chains, which reap much higher margins from combo meals.
To get in front of this, earlier this year Wendy's changed its low-price offerings to what it now calls its 'Right Price Right Size' menu. In addition, Wendy's introduced its Pretzel Bacon Cheeseburger, which has been a huge success.
This explains why Wendy's reported spectacular second-quarter results of 15% growth in adjusted earnings before interest, taxes, depreciation, and amortization.
For its part, industry juggernaut McDonald's is trying several new items designed to pique consumer interest, particularly those weary of the same old burger offerings.
McDonald's has aggressively branched out into coffee and other specialty drinks, which are higher-margin products helping boost profits. And, more recently, McDonald's announced plans to introduce the new Mighty Wings, hoping to take a slice of the massive chicken consumption in the United States.
Americans consumed an average of 82 pounds of chicken per capita in 2012, and through its new Mighty Wings, in addition to its current Chicken McWraps and its already-successful Chicken McNuggets, you can see why McDonald's is eager to take advantage of this trend.
Meanwhile, Burger King itself plans on rolling out new items for the fall, but there's no denying it is playing catch up to its two more successful rivals. Consider that last year, Wendy's surpassed Burger King as the number-two U.S. fast-food chain.
Burger King's global comparable sales inched up 0.6% in the second quarter, with adjusted EBITDA increasing 2.7% in the same period, year over year.
Shareholder rewards that are second to none
Although McDonald's is admittedly struggling to grow sales at a satisfactory pace, it has a track record of rewarding shareholders that is hard to beat.
The company returned $1.1 billion to shareholders in the first quarter alone, through a combination of dividend payments and share buybacks. McDonald's has increased its dividend every year since its first dividend payment in 1976.
In an investing environment where interest rates are still low by historical standards and safe high-yielding stocks are hard to come by, McDonald's 3.3% dividend is very attractive to income-seekers. McDonald's offers a better payout than Wendy's and Burger King, which yield 2.5% and 1.2%, respectively. In addition, it's been four consecutive quarters without a dividend increase for McDonald's, so expect the operator of the Golden Arches to increase its payout in just a couple of months.
Wendy's is firing on all cylinders, and growth investors may be able to squeeze out further capital gains from its turnaround. Whether the company is able to meaningfully steal market share from McDonald's over the long term, however, remains to be seen.
For the time being, both Wendy's and McDonald's are diversifying their menus beyond the tried and true, which could energize shareholder returns through price appreciation and dividend payouts.
The article Are New Menu Items Enough to Boost Fast Food Sales? originally appeared on Fool.com.Robert Ciura owns shares of McDonald's. The Motley Fool recommends Burger King Worldwide and McDonald's. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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