Insight: Brand Finance- Healthy eating leads to slimmer valuations of fast food brands

Healthy Eating Leads to Slimmer Valuations of Fast Food Brands

• Brand values of the biggest fast food brands falling due to healthy eating & fast casual trends
• McDonald’s is down 9%, Subway 1%, Taco Bell 10%, Domino’s 16%, Pizza Hut 22% and KFC 27%
• Papa Johns and Tim Horton buck the trend, growing strongly
• Health scandals see US$442 million wiped off Chipotle’s brand value

Every year, Brand Finance values the brands of thousands of the world’s biggest companies. The world’s 25 most valuable fast food brands are included in the Brand Finance Restaurants 25.

The brand values of McDonald’s, KFC, Subway, Taco Bell, Pizza Hut and Domino’s have all fallen due to heavy competition in an increasingly fragmented market as well as healthier challenger brands offering greater choice for consumers.

Panera Bread, regularly lauded as the healthiest fast food chain, is a beneficiary of this trend for slightly healthier, fast-casual options. Panera’s communications and advertising (developed with lead agency, Anomaly, since 2015) draw heavily upon this theme, stressing the importance of ‘clean’, natural food as the foundation of a full and healthy life. The brand is going from strength to strength, with its Brand Index Score increasing from 71 in 2025 to 76 in 2016 and 80 this year. Brand value is up 32% to US$1.9 billion.

The same cannot be said for follow fast-casual pioneer Chipotle Mexican Grill. Its brand value is down 13% to US$2.9 billion. Though consumer trends are in its favour and the brand had been growing rapidly, reputational issues have dogged Chipotle over the last 18 months. In late 2015, dozens of customers were taken ill in several separate incidents due to outbreaks of Salmonella, E. coli and Norovirus.

Though firm steps have now been taken to address hygiene standards, sales for 2016 were down 13% on the year before and profits were down over 75%. Some tentative signs of recovery are just starting to emerge however, suggesting that Chipotle has been able to develop a sufficiently strong brand to weather the crisis long term.

Bucking the healthy eating trend is Papa John’s, this year’s fastest growing restaurant brand. The firm continues to expand and is rapidly approaching a total of 5,000 locations. Franchisee fees are relatively high, including an ad royalty of 8%, though with brand value growth of 52% and a 5-point increase in its Brand Strength Index score, CEO and founder John Schnatter will feel confident in justifying the royalties.

Papa John’s product and advertising are fairly traditional, Papa John’s has pioneered digital technology. It was the first pizza chain to offer online ordering, back in 2002, its first-mover advantage netting it additional market share. This year, it is trialling ‘Papa Priority’ which will enable customers to move their orders to the front of the queue for a $3 fee. Though there is every chance that this will prove popular with some customers and generate extra revenue, there is a significant risk this will alienate others, undermining Papa’s everyman image, weakening the brand. Papa John’s should ensure that it has done its brand due diligence in addition to examining the short-term financial case before proceeding.

Tim Horton’s is another strong performer, with a 45% increase in brand value. The coffee chain offering may be considered run-of-the-mill to some, but its surge indicates that there is an under-exploited appetite for reasonably priced rather than premium coffee.

Its merger with Burger King has benefitted both brands (Burger King’s brand value is up 11%) as well as shareholders; the brand’s combined market capitalization is US$4 billion higher now than at the time of the merger. The deal provides opportunities for improved distribution and cost saving. Tim Horton’s devotees may be concerned at the loss of a Canadian icon but the strength and unique identities of both brands would make the disappearance of either almost unthinkable.