- Restaurant operators are seeking to revitalise store traffic by offering attractive value deals
- Companies have revised downward FY guidance, lowering expectations for comparable sales and EPS
- Select brands experienced positive SSS growth driven by menu refinements and demand for value meals
- Favour Asian fast food chains with diversified geographic exposure
- Key catalysts drove better-than-expected growth, and rebasing effect from US operations
2025 to see more cautious consumers. Global fast food chain operators, including McDonald’s, are experiencing declining transaction volumes in 2025, as customers, particularly those with low and now mid-range incomes, cut back on repeat visits. Amid US economic uncertainty, consumer spending is expected to soften in 2025, according to McKinsey's Consumer Survey. Dine-out food-related spending is expected to decrease compared with 2024, as rising food prices continue to pressure household budget. Consumers, having already allocated more of their budgets to food, have less room to splurge. According to US Census, overall food prices are forecast to rise by 3.5% y/y, with food-at-home prices increasing by 3.2% y/y and food-away-from-home prices increasing by 3.8% y/y.
1Q25 reported softer comparable sales with downward revision in guidance. In 1Q25, fast food players such as McDonald's and Wendy’s recorded declines of 3.6% in US comparable sales and 1.1% in global-systemwide sales, respectively. While limited-service restaurants such as Shake Shack and Chipotle recorded muted same-store sales change of 0.2% and -0.4%, respectively.
Meanwhile, Yum! Brands recorded positive same-store sales growth in KFC (+2%) and Taco Bell (+9%), driven by menu refinements (particularly those with chicken offerings) and strong demand for value meal deals continue to support store traffic. In addition, net unit growth is helping to offset slower US spending. Investments in digitalisation and AI are focused on streamlining drive-through and kiosk ordering to mitigate rising labour costs.
Both fast food and limited services operators have recently revised their guidance amid the ongoing macro uncertainty. For instance, Wendy’s lowered its full-year adjusted EPS forecast by 5%. Limited services restaurants such as Chipotle lowered its comparable sales growth forecast to a conservative low-single-digit range (previously at low-to-mid single-digit range), while Shake Shack trimmed its full-year revenue guidance. Sweetgreen lowered its revenue and adjusted earnings guidance, and now expects same-store sales to be flat, down from 1-3% growth.
Prefer diversified regional fast food plays. Despite weaker-than-expected comparable sales, dragged by lower pricing, we favour Asian fast food chains with diversified geographic exposure and store expansion to drive growth outside of US regions. The industry also has attractive valuations at 17x forward PE multiples. Meanwhile, we expect US-listed global restaurant chains to offset lower comparable sales with net unit growth, a dynamic that is already priced into valuation multiples of 23-25 forward PE.
Figure 1: Latest comparable sales changes (% y/y)
Source: Companies, DBS
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