Affordability Is Helping Fast-food Chains Close The Gap On Fast-casual Competitors

"Quality ingredients" are still a top driver for customer visits, but RBC and its partner Mission Measurement found that price, such as the value tiers at fast-food restaurants, have also become more important.

McDonald's Corp., Wendy's Co., Burger King, a Restaurant Brands International Inc. brand, and other traditional fast-food chains are closing the gap with fast-casual as factors like affordability gain significance with customers, according to the latest RBC Capital Markets report.

Also read, The Rise of the Canadian Fast-Casual: What to Know.

"Quality ingredients" are still a top driver for customer visits, but RBC and its partner Mission Measurement found that price, such as the value tiers at fast-food restaurants, have also become more important. "Consumers are now increasingly prioritizing affordability and taste after a previous rise in the importance of healthiness," the report said. "These findings seem to endorse the view that chains such as McDonald's should focus on making a better cheeseburger rather than extending the menu into 'healthy food'."

RBC found that brand perception of large, traditional fast-food chains is improving compared with fast-casual chains. Fast-casual includes Panera Bread Co. and Chipotle Mexican Grill Inc.

The three "best-in-class" fast-food operators, according to RBC, are Chick-fil-A, In-N-Out and Culver's. McDonald's still has a way to go towards improving "sales-driving attributes" like quality, taste and service, but changes that are coming through its "experience of the future" revamp, including self-ordering kiosks and new menu ingredients, means they are "poised to rise significantly over the next year," said RBC.

McDonald's shares are up 22.1% for the year so far, Wendy's is up 19.6% for the period, and Restaurant Brands has increased 27.6% for 2017 to date. The S&P 500 index is up 6.6% for the year so far.

SOURCE Tonya Garcia, Market Watch