Earlier this month, Restaurant Business declared that Chick-fil-A is now McDonald’s biggest competitor in the fiercely competitive QSR space.
Not Burger King or Wendy’s—despite the 1980s burger wars that inspired “Where’s the Beef?—but a chicken chain that happens to be closed on Sundays.
The trade publication pored over Technomic’s Top 500 Chain Restaurant Report and discovered that Chick-fil-A’s domestic sales will likely jump those of Taco Bell, Wendy’s and Burger King this year and—barring a catastrophe—should surpass Subway next year to become the third-largest restaurant chain, behind just McDonald’s and Starbucks.
Kalinowski Equity Research confirmed the likely takeover: “We have long pointed out that Chick-fil-A is the restaurant competition with which McDonald’s U.S. should most concern itself—and by extension, investors should, too. But this goes beyond McDonald’s.”
While the news of an impending leapfrog onto the medal podium may come as a surprise, it shouldn’t. Here’s how Chick-fil-A positioned itself to be in the top three, despite having a shorter workweek and a significantly smaller footprint than most QSR chains.
Value is relative. While many chains—including McDonald’s—added margin pressure this year by chasing value propositions in an attempt to rectify dissipating guest counts, Chick-fil-A sat out the discounting wars. In July, the chain’s traffic was up 10%, making it clear that Chick-fil-A’s customers don’t define value by $1 deals.
Avoiding saturation. Chick-fil-A’s success despite its smaller footprint may illustrate a bigger issue in the industry—oversaturation. Subway struggled with this before closing more than 900 of its 26,000-plus units in 2017, for example. The sandwich chain is now bracing for a Chick-fil-A takeover. With more competitive pressures than ever squeezing the quick-service space, the chances of cannibalization are very real for ubiquitous concepts. As Restaurant Business points out, Chick-fil-A’s 2,300 locations equate to less than half the number of Wendy’s and a third of the number of Burger King.
Chick-fil-A’s approach to expansion is stringent. According to CNBC, Chick-fil-A receives about 60,000 franchise applications a year and only about 80 of them are selected to open a location (less than 1%). Operators—who are not owners, that distinction goes to the company itself—can’t open more than one restaurant, which means their focus is honed in on executing the fundamentals of their designated location. This is arguably the biggest contributor to the chain’s success.
Happy employees equal happy customers. Being closed on Sundays is a perk for employees who can carry on with their personal lives without the possibility of getting called in or scheduled. Many Chick-fil-A operators also pay well above the minimum wage, including a California operator who pays $17 an hour. At the corporate level, Chick-fil-A was just named one of the best large companies for women based on compensation and culture.
Efficiency and accuracy. According to QSR Magazine’s annual drive-thru study, Chick-fil-A’s drive-thru time is the 11th-fastest in the segment. Its accuracy is more of an asset, with a score of 93.4%. To ensure speed and accuracy standards are met, Chick-fil-A continuously tests designs and processes within a full-scale drive-thru mock-up (indoors) at its Atlanta headquarters.
Employees also walk the drive-thru line with tablets to expedite orders. According to Jared Solid, who leads the company’s drive-thru innovation, this “is a great way for us to get really high volumes of cars through the drive-thru extremely efficiently. It’s also a way for us to give customers personalized service in a place they may not expect it.”
Speaking of customer service ... In a time of haste and automation, Chick-fil-A’s signature customer service is a hot commodity. In QSR’s drive-thru study, the chain was first for employees saying “please,” “thank you” and smiling. The company consistently outperforms all other chains across the industry in customer satisfaction surveys, including the most recent American Customer Satisfaction Index. In addition to ingraining pleasantries in its employees, the company is also focused on personalized communication through its newly revamped email program.
Technology forward. Chick-fil-A’s One App was recently revamped in response to customer feedback. The app offers loyalty redemption and allows customers to order ahead and pick up their meal in the drive-thru. Much of Chick-fil-A’s success comes from its technology prowess. How did it get there? As the Daily Muse reports, employees are tasked with looking for new ways to leverage technology to improve the restaurant experience. Chick-fil-A has a dedicated space—HATCH—for experimentation and prototyping, as well as an IT Innovation Lab and a recently-opened Technology Innovation Center. The company’s tech team is tasked with implementing solutions that allow its restaurants to manage high volume. They do so, in part, through its proprietary platforms that allow the company to scale.
Future proofing. In 2018, Chick-fil-A opened two new prototypes focused entirely on delivery and catering operations. As growth in off-premise business grows, this approach was taken to ensure its traditional restaurant operations aren’t compromised. Chick-fil-A isn’t the only restaurant company experimenting with this non-retail, commissary-type of concept, but it is the biggest.
Speaking of leveraging growth channels, did anyone expect a fast food chain to dive into meal kits? Chick-fil-A did just that over the summer, offering another solution for busy consumers and another potential occasion for the chain. Though it hasn’t committed to a roll out beyond its test, the company admitted it was encouraged with the initial results.
What will Chick-fil-A try next? The company has the loyal following and deep pockets to try most anything.
Although the company seems to be hitting on all cylinders, it’s important to note that its sales growth does not mean it will dethrone McDonald’s anytime soon. McDonald’s turned in nearly $38 billion in sales in 2017, while Chick-fil-A crossed over the $9 billion mark. Still, McDonald’s recently started testing the Ultimate Chicken Sandwich, which resembles Chick-fil-A’s signature offering down to the pickle topping. Perhaps the bigger question now is who’s chasing whom?
