With a legion of fans, Chick-fil-A is among the most iconic fast-food brands in the world, no wonder investors would like to invest in Chick-fil-A stock. It is among the most renowned fast-food companies in the United States, and its popularity only seems to have grown during a difficult period for other restaurants. As a satisfied client who recognizes the firm's solid financial condition, it's only logical that anybody would be interested in investing in Chick-fil-A stock.
History of Chick-Fil-A
Chick-fil-A was first launched in Atlanta in 1946, but with a different name, Dwarf House. S. Truett Cathy, the owner of Dwarf House, created the nation's first chicken sandwich. Dwarf House, surprisingly, specialized in hamburgers and steaks, and there are still 12 sites today.
In 1967, Dwarf House became Chick-fil-A, focusing primarily on its most popular menu item, the chicken sandwich. Instead of "fillet," the name is a play on words, and the "A" stands for "Grade A" quality meat. The corporation never compromised on the quality and instilled its principles across the organization.
The founders have ingrained Christian ideals in the firm since its inception, and they have never been, and will never be open on Sundays. When you're wanting chicken after Sunday worship, it's somewhat inconvenient. Employees at Chick-fil-A are known for providing excellent customer service, and they receive awards almost every year.
Chick-fil-A has the most income per location of any other fast-food chain, and it's not even close. They're also only open six days a week. This is an extraordinary feat, and it is one of the factors that makes the company stand out from the competition.
According to Forbes, the average sales per unit of Chick-fil-A were roughly $4 million in 2017. When we compare this with McDonald’s we see the striking differences between the two chains. McDonald’s had average sales per unit of $2.6 million in the same year.
The higher menu pricing points for their favorite goods are one of the driving factors for increased income. McDonald's, for example, has a "Dollar Menu" featuring little fries and other low-cost products. By contrast, Chick-fil-A offers high-quality products at a slightly higher price.
Although their input costs are equivalent to those of their competitors, they have enormous pricing power and demand. This is achieved through their customer loyalty, which is incomparable to other fast-food chains. Chick-fil-A is able to achieve high-profit margins as a result of this while presenting higher customer retention.
Restaurants have a profit margin of 6-9 percent on average. However, Chick-fil-profit A's margins have risen beyond 10% in recent years, allowing the company to produce greater free cash flow for shareholders.
Why Chick-Fil-A doesn’t have a stock
Chick-fil-A, like many other significant private corporations, has opted to remain private. Mostly because it is an enterprise that is run by a family. Therefore it would rather not cope with the pressure from external shareholders or risk of losing control of the company down the line. A Chick-fil-A stock would bring additional scrutiny to management, and to some extent, this could influence management decisions since it would be questioned publicly by analysts and shareholders.
In order to understand the reason why Chick-fil-A is still a privately held company, we must look at some of the principles that have defined the company since its inception. You will also be able to understand why the likelihood of a Chick-fil-A stock IPO is low.
As previously stated, Chick-fil-A is primarily a family-owned business that has been handed down to successors. It is one of the ways the family has preserved their generational wealth over the years. Their intention is to continue passing control down the control of the company from generation to generation.
It's apparent that the Cathy family values the firm remaining under their complete control. Never risking a situation where external investors may potentially seize control of the business. There is also a very little monetary incentive for the family to give up part of the control of the company since they are collectively worth around $7.1 billion in net value. This puts the family among the top 30 wealthiest families in America.
Chick-fil-corporate A's philosophy is heavily entrenched in Southern Baptist traditions. "To praise God by becoming better stewards of everything that is provided to us. To create a good impact on everyone who interacts with Chick-fil-A" as the firm's mission statement states.
Although they are probably losing a lot of money as a consequence of their choice, the restaurant is closed on Sundays, Thanksgiving, and Christmas. While having a Christian-oriented corporation would not preclude it from being a profitable publicly listed company, there are other problems. Like opposing same-sex marriage (which the company has previously expressed) would make it a great target for activist investors. This could put additional pressure on management, and it would certainly change once the company became public. There is no reason to think the company would still close on Sundays, once a Chick-fil-A stock IPO was completed.
Shareholders and analysts would have a hard time comprehending the financial rationalization of closing on Sundays. In their minds, the company is sacrificing ~14.2% of revenue just to stick by its Christian principles.
This was something that was evident to the founder, S. Truett Cathy. Before he passed away he was concerned about the company's capacity to go public while staying faithful to its core principles.
Chick-fil-A, like many other quick-service restaurants (QSR) companies, operates under a franchise model. Chick-fil-A's approach, however, differs from that of many other franchised businesses in that it restricts restaurant sites to a specific geographic area. This would be another factor that would certainly be questioned if Chick-fil-A went public.
This approach to the franchise model is one of the reasons why there aren’t as many Chick-fil-A locations as other franchise chains. Most likely the owners would like to keep the same strategy. Especially because it has worked so well over the past. If there was a Chick-fil-A stock IPO, this would also be questioned by analysts and investors, as they are looking for companies that are willing to grow independently of their principles. This could create a conflict between the current owners and future investors in the company.
Given the company’s current success there are not a lot of reasons for the company to go public. The current owners are not looking for an exit, and the company certainly does not need capital, since it can easily borrow money, and effortlessly access capital.
As one of the most successful franchises in the world, the advantages of going public would outweigh the disadvantages. At least for the current ownership. Since Chick-fil-A is estimated to be the third most profitable fast-food chain in the US, it seems that being privately held has actually benefited the company over the long term.
Will there be a Chick-Fil-A stock IPO in the future?
There will probably never be a Chick-fil-A stock IPO. Most likely the company will remain privately held by the next generation and for years to come. There are some reasons that also explain the reasons behind this.
- Current owners do not need liquidity
- It does not need to raise capital
- The company has access to capital
Two of the most common reasons for an IPO are for founders or owners to exit their investment, or to raise capital in order to further grow the business. Since Chick-fil-A does not fit in this description, it seems unlikely that we could see a Chick-fil-A stock IPO.
Based on what we know about the company's founders, none of the above appear to be significant concerns for them, and the advantages certainly don't outweigh the risks of having the company subjected to quarterly earnings reports and anticipations of meeting environmental, social, and governance (ESG) metrics that are becoming extremely important to Wall Street.
According to the LA Times, the most fundamental reason why an IPO is not in the plans for Chick-fil-A is that the family successors who acquired the firm in 2014 agreed not to take it public. As a condition of their inheritance. Dan Cathy, an heir of founder S. Truett Cathy, is the company's current CEO and chairman.
In what scenario could we see a Chick-fil-A stock IPO?
There is only one reason that could push Chick-fil-A to go public, and that is if the current ownership finds themselves in a tough financial situation. If a situation like this were to happen, it is possible that we as investors could participate in a Chick-fil-A stock IPO.
This seems to be the only situation in which a Chick-fil-A stock IPO is plausible. However, it also seems unlikely that the owners find themselves in this kind of situation and need to raise capital.
There's also a chance that conditions within the firm change dramatically over time and the family's perception of the value of going public shifts. However, given the company's present favorable prospects, we believe it is an exceedingly improbable scenario, based on our study.
Why are investors looking forward to a Chick-fil-A stock IPO?
Chick-fil-A has been able to establish a devoted customer base, due to its distinctive business approach, and its high-quality food. The way their chicken sandwiches are prepared continues to remain one of the company’s strongest competitive advantages. That coupled with the stellar customer service that has set the company apart from the competition over the past are some of the reasons why Chick-fil-A is such a unique brand.
It remains one of the most famous and instantly recognizable fast-food businesses in the US.
Analysts estimate that Chick-fil-A could overtake McDonald's and Starbucks as the country's largest fast-food chain in the future. For now, it remains the second-largest fast-food chain in the country. With the recent growth in the sales of Chick-Fil-A, no wonder many investors are eager to invest in Chick-fil-A stock.
Alternatives of investing in Chick-Fil-A stock
If you have been waiting for a Chick-fil-A stock IPO, do not despair, there are other alternative fast-food stocks you can invest in. Although you can't invest in Chick-fil-A stock, you can look at some of its competitors. Like McDonald's, Restaurant Brands International, Yum! Brands, and Jollibee. If you want to get some exposure to the QSR sector, there are plenty of stocks that have equally unique brands that you should consider.
Leave a Reply