McDonald's Is Still Destroying Every Other Burger Chain

The 10-Ks have been filed with the SEC allowing the annual comparative look at the balance of power among the largest burger chains. There's one significant change this year.

A few years back, it was widely reported that Wendy's had passed Burger King and become the No. 2 burger chain. News outlets repeated it again and again. But it wasn't correct because it was based on an estimate of Burger King's sales that proved to be well below the actual sales number that Burger King provided when it became publicly held again.

But now it actually may be true that Wendy's ranks No. 2 in U.S./Canada sales (it and BK report North American sales). The two chains were fairly close before but Wendy's saw a 1.8% gain in same-store sales in 2013 while Burger King's total domestic sales declined slightly due to a 0.9% drop in same-store sales. By my estimate, Wendy's has inched ahead of Burger King in North American sales.

That said, the difference between being Nos. 2 or 3 in North America is fairly unimportant. Increasingly, the quick-service burger business at the top is a global industry. That's confirmed by an interesting passage in McDonald's 10-K where the world's largest restaurant chain defines its competition, which includes everyone down to the taco truck on the corner:

• "The Company's primary competition, which management refers to as the informal eating out ("IEO") segment, includes the following restaurant categories defined by Euromonitor International: quick-service eating establishments, casual dining full-service restaurants, street stalls or kiosks, cafés, 100% home delivery/takeaway providers, specialist coffee shops, self-service cafeterias and juice/smoothie bars. Market data related to cafés is separately available and now included in the IEO segment. The IEO segment excludes establishments that primarily serve alcohol and full-service restaurants other than casual dining.
• "Based on data from Euromonitor International, the global IEO segment was composed of approximately 8 million outlets and generated $1.2 trillion in annual sales in 2012, the most recent year for which data is available. McDonald's Systemwide 2012 restaurant business accounted for 0.4% of those outlets and about 8% of the sales.
• "Management also on occasion benchmarks McDonald's against the entire restaurant industry, including the IEO segment defined above and all other full-service restaurants. Based on data from Euromonitor International, the restaurant industry was composed of approximately 16 million outlets and generated $2.3 trillion in annual sales in 2012. McDonald's Systemwide restaurant business accounted for 0.2% of those outlets and about 4% of the sales."

Because CKE Restaurants is now privately held, there's no solid data on its two chains this year. But I'd say Hardee's continues at No. 6 with estimated 2013 sales of $2.2 billion whileCarl's Jr. would be No. 7 with an estimated $1.7 billion in sales. Put Whataburger No. 8 at an estimated $1.55 billion.

Here are a few other interesting bits from the Top 5 Burger Chains' SEC filings:

• Motley Fool, which delights in writing foolish things, recently ran a piece suggesting that Burger King is making "strategic moves aimed directly at dethroning its larger rival McDonald's." This is nonsense, of course, considering among many other things, McDonald's average restaurant sales, which are double those for Burger King. Satisfries are great and all, but BK isn't dethroning anyone soon.
• Jack in the Box says 70% of its sales at company stores come via its drive-thru windows. For Wendy's, 64.8% of sales are through the window.
• Wendy's is shifting ad spending in favor of national media. Last year, franchisees contributed 3.25% of retail sales for national advertising and 0.75% for local/regional ads. Beginning this year the mix is 3.5% national/0.5% local.
• Burger King notes that entered into contracts with Coca-Cola Co. and Dr Pepper/Snapple Inc. to offer their soda brands. The contract obligates BK to purchase a specified number of gallons of soft-drink syrup. How much? "As of December 31, 2013, we estimate that it will take approximately 16 years to complete the Coca-Cola and Dr Pepper/Snapple, Inc. purchase commitments." Drink up.