5 Restaurants Growing Faster Than Chipotle and Potbelly

Potbelly (NASDAQ: PBPB  ) was another smoking-hot consumer-feeding IPO on Friday. The toasted sandwich shop that got its start at an antiques store more than doubled on Friday after hitting the market at $14. Potbelly shares were moving higher again on Monday.

You're already hearing the Chipotle Mexican Grill (NYSE: CMG  ) comparisons. Since Potbelly and Chipotle Mexican Grill are both fast-casual concepts where higher-quality than fast-food meals are prepared as they're ordered and paid for at the counter, it may seem fair to lump the two dissimilar cuisines into the same pot. 

However, casting Potbelly as the next Chipotle is missing the essential ingredient of growth. Potbelly sales grew at an 8% clip in 2010 before nearly doubling to 15.5% in 2011. The accelerating growth didn't stick, as Potbelly's revenue climbed just 12% through the first six months of this year. As mature as Chipotle may seem with more than 1,500 locations worldwide, analysts see it growing at a 16% clip this year and again in 2014.

That's fast, but there are a few chains that are growing even faster. Let's go over five chains that primarily through expansion and acquisitions are growing faster than both Chipotle and Potbelly.

Company This Year  Next Year
Noodles & Co. (NASDAQ: NDLS  ) 18% 16%
Buffalo Wild Wings (NASDAQ: BWLD  )   22% 18% 
Diversified Restaurant Holdings (NASDAQ: BAGR  ) 44% 25% 
Ignite Restaurant Group (NASDAQ: IRG  ) 64%  20% 
Chuy's Holdings  (NASDAQ: CHUY  )   19% 20% 

Source: Yahoo! Finance.

Noodles & Co. stirred up Chipotle comparisons when it went public this summer. Just like Potbelly, the pasta and noodle shop has seen its recent offering more than double since going public in the teens. The rally may not seem fair. Chipotle was growing a lot faster than Noodles at this stage in the burrito roller's life cycle. Noodles has an impressive streak of positive comps going, but the valuation seems a bit wacky at 80 times next year's projected profitability. The appeal of offering noodles across various types of cuisine may make it a safe "no veto" place to eat, but there's a lot of expansion growth priced into Noodles' stock at the moment.

Buffalo Wild Wings is the biggest name on this list. The chain of family-friendly sports bars lives for football season, but it also does a fair deal of business when there aren't any marquee games, given its popular bone-in and boneless chicken wings that it lathers up in its many signature sauces. Some worrywarts feared that Mickey D's was invading the turf of Buffalo Wild Wings with its recent Mighty Wings addition, but any fan of the product line knows that there's no comparison. Ronald McDonald also won't pour you a cold one between commercial breaks. 

Diversified Restaurant Holdings is one of the largest franchisees of Buffalo Wild Wings. It watches over 35 different locations, but it also has its proprietary Bagger Dave's Legendary Burger Tavern. There are just a dozen locations of its own casual restaurant concept, but Diversified Restaurant Holdings is rolling. It may not be fair to consider its 44% projected surge in sales this year, or the 61% uptick it reports in its most recent quarter. Diversified Restaurant Holdings snapped up eight Buffalo Wild Wings late last year, padding its tally that's growing at a heady clip on its own. However, analysts still see an impressive 25% in top-line growth on a slightly smoother basis come 2014.

Ignite Restaurant Group operates 350 restaurants under its Joe's Crab Shack, Romano's Macaroni Grill, and Brick House Tavern + Tap concepts. The spectacular 64% pop in sales that Wall Street's eyeing here is nearly entirely the handiwork of the 186-unit Romano's Macaroni Grill that it acquired in April. Yes, that's skewing the growth for both this year and next year, but comps were positive at Ignite Restaurant Group's two other concepts in its latest quarter.

Finally we have Chuy's Holdings. The casual and lively Tex-Mex chain was last year's darling dining IPO. There are now 46 Chuy's restaurants across the country after a summertime opening in Ohio. Despite being the table-service type of restaurant that seems to be losing favor to the speedier fast-casual burrito rollers, Chuy's Holdings has cultivated a loyal following by offering a menu in which nearly every entree sells for less than $10. The Elvis shrines and customer-submitted gallery of pooch portraits are also nice touches in making the concept distinctive from other salsa-flinging chains.

So, yes, Potbelly and Chipolte are the ones making headlines these days, but you can dig deeper to find the meatier growth in this industry.

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Read/Post Comments (7) | Recommend This Article (72)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 08, 2013, at 1:48 PM, Relyts123 wrote:

    You completely neglected the fact Chipotle sits at over $400 a share in a relatively short period of time. Of course once a company reaches such heights, their "growth" rate tends to slow down. By your standards, quite a few companies are ahead.

  • Report this Comment On October 11, 2013, at 2:57 PM, Tim418 wrote:

    I always worry about restaurant chains growing too fast, though. The faster you try to grow, the less diligent you are about doing the necessary market research, finding the perfect location, negotiating the best deals for space, etc.

    I'd rather see a chain with steady but unspectacular growth if it means they are doing the work to ensure the restaurants they open are successful.

  • Report this Comment On October 11, 2013, at 3:28 PM, frosty77 wrote:

    If "invest in what you know" is a reliable adage, I am going to buy some Potbelly. For those who have never been to one, all I can say is that the atmosphere in those places is entirely unique, and it has more character than a place like Chipotle, plus they do a great job with consistency from location to location. Also, the sandwiches are fantastic...on a food level they really are the Chipotle of sandwich shops. PBPB may seem a bit overpriced right now, but this chain is going to absolutely blow up if they can maintain their food quality and personality.

  • Report this Comment On October 11, 2013, at 4:32 PM, TMFPennyWise wrote:

    Hi, Rick, Potbelly is an interesting offering and I think they are giving Panera a run for the money in regions where they compete. (At least that's what my kids are telling me from their personal observations.)

    My favorite restaurant stock this past year has been FRGI (Fiesta Restaurant Group).. They compete with Chipotle in the fast casual group but I have never eaten in one. I understand they have passionate fans all around Florida, where they are centered..so just wondered...have you ever tried them? And do you know anything about their stock? Thx.

  • Report this Comment On October 11, 2013, at 4:42 PM, shootfishibarrel wrote:

    I wish every IPO is a dutch auction. It is unfair that larger investors get the shares so much cheaper. e.g. PBPB $14 -> $30s in a single day

  • Report this Comment On October 13, 2013, at 5:40 AM, noglitter wrote:

    As we watch many chain restaurants flop like a fish out of water for the last several years, investing in almost any one of them has to be looked at as a high risk venture. Until this economy turns around (begining to wonder if it ever will) starting a new chain restaurant in these unceratin times is ludacris, in my opinion. As pocket books become tighter and tighter, the dollars to spent on prepared food drops like a rock. This is not rocket science.

    My best advice would be if you catch a bounce, you better take your money and run. Some will be nothing more than a flash in the pan.

    Chipotle, my wife and I tried it and we didn't care for it at all. I don't understand what all the hype is about. Too limited of a menu for one thing and the quality and taste of food leaves quite a bit to be desired, if you ask me. Look at what they offer for a product and then look at the price of their stock. Something doesn't add up. Not in my mind, anyway.

    Many of these new chain restaurants seem to be built more on theme and hype, than anything else.

    The easiest way to tell when some are in trouble? Just watch for how much they start pouring into advertising. When it's like every 10 minutes you see an ad for "Wings" or an ad for any one of the Darden restaurants. And they aren't the only ones.

    The mindset seems to be if it's not working, just keep advertising until it does. Too much advertising really can have a negative effect after so long. It reaches a point where the consumers start thinking, "gee, if they'd go out business I wouldn't have to see their ads anymore". When it reaches that point, that is when advertising is overdone by about ten fold.

    Red Lobster ad/slogan, "we sea food differently". I think that's a big part of the problem. I don't know how they "see" it, but something isn't working. Then they went all-in with Longhorn Steak houses. They say you can't "fake" steak. Really???? It's not steak in my book. And the service at some locations is a joke.

  • Report this Comment On October 17, 2013, at 5:07 PM, occasionalcynic wrote:

    I have high regard for Chipotle. For quality of food, I place it in the top 5% of all eating establishments that I have visited, and rank it far higher than any other in the range of fast food to casual dining, save for Panera Bread, which I assess to be an approximate equal. My only criticism of Chipotle dining is that I have found a disproportionate number of young people inside, so the chain's popularity gives rise to a rather noisy interior. However, this problem may be easily solved by either eating outside when weather permits or dropping by at times not frequented by the younger set (say school hours).

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