Fast-Food Industry Faces Lean Growth

By Halverson, Guy | The Christian Science Monitor, October 28, 1991 | Go to article overview

Fast-Food Industry Faces Lean Growth


Halverson, Guy, The Christian Science Monitor


THERE'S less sizzle - and more fizzle - in the $75 billion fast-food industry these days, as the major chains find that they overextended themselves in the 1980s.

If it often seems as though the United States is awash in fast-food outlets, the reason is simple: It is. From the Pacific to the Atlantic, fast-food stores can be found along most major highways. The "industry is overbuilt and maturing," concludes Mark Manson, an analyst with Donaldson, Lufkin & Jenrette Inc. Mr. Manson sees only "winners and losers" in the industry; winners, he reckons, are chains that can increase market share.

Operating on minuscule profit margins, with revenue growth largely stalled within the domestic US market, some chains are now finding it necessary to slash prices - and hence profits - just to maintain existing market positions.

"There's still room for growth for the restaurant industry within the US," says Michael Mueller, an analyst for Montgomery Securities Inc. Yet, for many of the older chains, he says, "there's no price flexibility left," to enable the chains to slash costs and turn in respectable profits.

The main opportunities for investors, Mr. Mueller says, involve the smaller, lesser-known "speciality" chains, such as Shoneys, Ryans, Sizzler Steak House, Au Bon Pain, and the Spaghetti Warehouse. Many of these chains, he says, "specialize in the new demographic wave," the "graying of America," and the maturing of the baby boomers, who in the 1970s and '80s gave momentum to such front-runners as McDonald's.

And for all its current turmoil, such as ruthless pricing wars, the restaurant industry continues to win plaudits from many stock market strategists. Dennis Jarrett, a technical analyst for Kidder, Peabody & Co., for example, sees the restaurant industry as one of the leading stock sectors in terms of market momentum.

That said, there's little disagreement here that growth is slowing and competition is becoming intense within the fast-food segment of the restaurant industry. …

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