Yum! Brands (NYSE: YUM) is attempting to break into the fast-casual restaurant market through a $375 million acquisition of Habit Restaurants Inc. (NASDAQ: HABT). This will give the owner of Taco Bell, KFC and Pizza hut a better opportunity during the struggle of these well known fast food places.
Habit Burger Grill, operated by Habit Restaurants, was founded in 1969 with almost 280 locations with several locations in China. The acquisition will close before the next quarter begins.
"As a fast-casual concept with strong unit economics, the Habit Burger Grill is a fantastic addition to the Yum family and has significant untapped growth potential in the U.S. and internationally," CEO David Gibbs, who recently took over the company, said in a statement.
With the fast food industry going through a struggle as customer dining trends are declining, this deal seems to have come at the perfect time for these companies. More customers are becoming conscious about their food choices and are choosing healthier places such as Chipotle Mexican Grill (NYSE: CMG) or Sweetgreen for food that seems to be the higher quality option. These places also cater to customers who do not have time to have a sit-down meal.
The fast-casual market has not had a rapid growth in their traffic, but has had growth nonetheless, still managing to outdo the fast-food industry. According to information from the NPD Group Crest service, traffic at fast-casual has increased by 3% in 2019.
The deal will permit Yum to break back into the Burger industry since they sold A&W Restaurants. They plan to put Habit in the burger market to challenge its champion, McDonald's (NYSE: MCD).
If this plan of action takes off, it could bring in as much profit as McDonald's did when they purchased Chipotle. McDonald's purchased Chipotle in 1998 and turned a huge profit by the end of 2006, exceeding $1 billion.
"Since completing its transformation to a wholly franchisee company, Yum! has been intimating that it would be receptive to an acquisition and we believe starting small is appropriate to mitigate risk and prove out the company's ability to successfully integrate and grow a concept," Bernstein analyst Sara Senatore wrote in a note Monday.