The restaurant industry is notoriously challenging and competitive, however, it can also be enormously profitable for investors picking the right stocks from the menu. In case you are hungry for growth opportunities in the restaurant business, our contributors think names like Buffalo Wild Wings (BWLD), Chipotle Mexican Grill (CMG 1.07%), and Domino's Pizza (DPZ 2.10%) offer especially appetizing growth prospects.
Steve Symington (Buffalo Wild Wings): You might love Buffalo Wild Wings for its sports-centric atmosphere, delicious wings, and as many as 30 beers on tap at any given location. But the sheer potential for the number of those locations to increase is enough to satisfy even the most ambitious growth-hungry investors.
Buffalo Wild Wings ended last quarter with 1,110 restaurants, and management has outlined a long-term goal of building a portfolio of diversified brands and operating at least 3,000 restaurants globally. That number includes around 1,700 Buffalo Wild Wings restaurants in North America alone over the next 10 years.
Source: Buffalo Wild Wings.
In addition, Buffalo Wild Wings has already acquired stakes in other small, complementary restaurants including street taco specialist Rusty Taco (recently rebranded as "R Taco") and "craft your own" pizza chain PizzaRev. What's more, Buffalo Wild Wings CEO Sally Smith has previously confirmed it has "probably looked at 200-plus" concepts so far, and intends to invest in as many as seven additional chains over the next five years. As a longtime shareholder myself, I'm more than happy to continue holding Buffalo Wild Wings stock as it steadily expands both its namesake concept and these up-and-coming chains.
Andres Cardenal (Chipotle Mexican Grill): Chipotle is clearly one of the most exciting growth stories in the restaurant industry over the last decade. The company is the poster child for the fast-casual revolution, and its particular focus on fresh, natural, and overall healthier ingredients resonates remarkably well among millennials, a crucial demographic group in the business.
Back in 2005, Chipotle had only 485 locations, and the business was producing roughly $628 million in revenue. Fast-forward 10 years, and the company has 1,878 units as of the second quarter in 2015, and Wall Street analysts calculate that the business will generate $4.73 billion in revenue this year.
Growth remains impressive as Chipotle continues outperforming most competitors in the restaurant industry. Total sales during the second quarter of 2015 grew 14.1% to $1.2 billion, while comparable-restaurant sales increased 4.3% versus the same period in 2015.
Importantly, Chipotle still has significant room for expansion; management believes it can open more than 3,000 restaurants in the U.S. alone. The company has barely taken its first steps into international markets, which should remain powerful growth drivers for years to come.
Chipotle is also expanding into Asian cuisine with its new ShopHouse concept, and venturing into pizza with Pizzeria Locale. These growth seeds could offer tremendous opportunities for expansion if management can achieve with them even a fraction of the success it has realized in Mexican cuisine.
Tim Green (Domino's Pizza): After years of stagnation, Domino's took a bold step in 2010, running an advertising campaign that essentially admitted that its pizza wasn't very good. The company improved its ingredients and revamped its recipe, and Domino's has been growing ever since. In 2014, revenue was 42% higher compared to 2009, and the company's profits more than doubled in that time.
Source: Domino's.
This growth hasn't let up. During the second quarter of this year, same-store sales jumped 12.8% at Domino's domestic stores, most of which are franchised. In International markets, same-store sales grew 6.7% excluding currency effects, with total sales rising 15%, since much of Domino's store growth is happening outside of the United States. Domino's already has a total of nearly 12,000 locations worldwide, but it still managed to open more than 800 new locations over the past 12 months.
This growth comes at a cost; fast-growing companies are rarely cheap for investors. Domino's stock trades at about 35 times trailing-12-month earnings, a lofty valuation for a once-stagnant pizza delivery chain. The market is betting that Domino's growth will continue, and so far, more than five years after it admitted that its pizza tasted like cardboard, Domino's is delivering.
