There's been no shortage of highs and lows for restaurant stocks over the last decade. While the industry has faced challenges, including rising labor costs, oversaturation, and a "restaurant recession" earlier in the decade, there have also been tailwinds, including the fast-casual boom, the rise of third-party delivery apps, and an active market for deals that has seen both publicly traded restaurant stocks merge and others get snatched up by private equity firms.
In the end, there were a number of restaurant stocks that generated market-beating returns in the decade, though you might be surprised by some of the names on this list. Let's take a look below at the five best restaurant stocks of the decade.
1. Domino's Pizza: Up 3,420%
The best restaurant stock of the last 10 years by far was Domino's Pizza (DPZ 0.15%). Under former CEO Patrick Doyle, the company embarked on a bold turnaround plan, revamping its pizza recipe and doubling down on technology to allow things like ordering through an app. Doyle even took the surprising step of going on TV commercials, acknowledging customer criticism that the pizza "tasted like cardboard" and promising to do better. He did.
Domino's has now posted 34 consecutive quarters of same-store sales growth in the U.S. and 103 consecutive quarters of international same-store sales growth. Through its franchising model, the company's profits have soared, and it expects steady growth ahead, forecasting 7% to 10% retail sales growth over the next two to three years.
2. Ruth's Hospitality: Up 978%
Ruth's Hospitality (RUTH), the parent of Ruth's Chris steakhouses, shows the power of small-cap stocks to deliver blockbuster returns. As a high-end steakhouse, Ruth's Hospitality saw revenue growth slump during the financial crisis, which caused the stock to plunge as it began the decade trading just above $2 a share. Though its growth has been relatively modest since then as it's added just a handful of restaurants, and revenue has increased only 33%, profit has surged as the company bounced back from the recession and sold off secondary concepts like Mitchell's Fish Market and Steakhouse.
Ruth's Hospitality shares have actually fallen since earlier in the year as traffic has declined, indicating that the post-recession rally may have run its course. Also compared to its pre-recession price, the stock is only up modestly, showing how the financial crisis delivered big gains for beaten-down stocks.
3. Chipotle Mexican Grill: Up 837%
Chipotle Mexican Grill's (CMG -0.80%) torrid growth over the last decade came largely from the stock's blowout performance in the first half of the 2010s as comparable sales often rose by double-digits and its Mexican-themed fast-casual concept spread quickly across the country, sparking plenty of imitators.
The stock had a big setback in 2015, when E. coli was found in the food at a number of its restaurants, undermining its brand of "Food with Integrity." Chipotle also drove customers away after the company was slow to apologize for the outbreak and at times blamed the media for the customer exodus.
More recently, the stock has surged again to record highs under the leadership of new CEO Brian Niccol, who has improved the company's digital strategy and marketing and introduced popular limited-time offerings like carne asada. Chipotle's sales and profits are now surging as comparable sales jumped 11% in the company's most recent quarter, and adjusted earnings per share soared 77%.
4. Denny's: Up 823%
Casual dining chain Denny's (DENN -1.75%) has been a surprising winner over the past decade. The stock was trading in the single-digit P/E range at the start of the 2010s as shares were undervalued following a sell-off after the recession. Recently, earnings have soared along with the stock thanks to the company's refranchising plan, following a model popular with fast-food chains like McDonald's and Restaurant Brands International's Burger King.
The stock surged when it announced its refranchising plan in October 2018, which includes selling company-operated locations to move from a 90% franchise-owned locations up to 96%-97% franchise-owned locations. That move has helped free up capital and eliminate restaurant-management expenses. Though new restaurant openings have been slow over the last decade, Denny's has impressed investors with steady earnings growth and a plan to unlock capital, which has helped drive this often-overlooked restaurant stock higher.
5. Starbucks: Up 671%
Coffee giant Starbucks (SBUX -1.31%) was a big winner as well in the aftermath of the financial crisis. The stock slumped in the years from 2006 to 2008, but it got back on track once longtime CEO Howard Schultz returned to the company. Under his guidance, the stock surged throughout the first half of the decade as comparable sales regularly grew in the mid-single-digit range, and the company continued to expand its footprint in the U.S. and around the world.
After the stock traded sideways for a few years, shares have jumped over the last year and a half on promising growth in China and another surge in the U.S. led by growth in its digital sales and its rewards program. In fiscal 2019, which ended in September, comparable sales rose 5%, and adjusted earnings per share were up 17%.
A wide-open field
What may be most notable about the above group of stocks is how different they are from one another. Included on the list is a pizza-delivery concept, a high-end steakhouse chain, a fast-casual brand, a diner-like casual dining chain, and the world's biggest coffee company. The list shows that successful restaurant stocks can come in many varieties.
Looking ahead to the 2020s, restaurants who can master delivery and digital ordering are most likely to be successful as digital and delivery are the biggest sources of growth right now, but we're also likely to see surprise winners -- like Ruth's Hospitality and Denny's were over the last decade.
Whatever plays out, the list of top performers in another decade is likely to be just as unpredictable.