Chipotle Mexican Grill (CMG +0.57%) and Dutch Bros (BROS 1.81%) are two of the fastest-growing restaurant chains in America. Chipotle carved out its own high-growth niche between cheaper fast food chains and full-service restaurants, while Dutch Bros disrupted traditional coffee chains with its compact drive-thru shops.
Both companies continued to grow even as inflation throttled consumer spending and drove up their labor and commodity costs. Chipotle's stock has rallied about 35% over the past three years, while Dutch Bros' stock has risen 65% since its IPO in September 2021. So which of these expanding restaurant chains is a better investment right now?
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The differences between Chipotle and Dutch Bros
Chipotle and Dutch Bros operate different business models. Chipotle owns and operates all of its stores, while Dutch Bros operates a mix of company-owned and franchised locations. Chipotle's approach is more capital-intensive, but this gives it tighter control over its own supply chain and quality control standards.
Chipotle operates dine-in locations, and it's been upgrading its stores with drive-thru "Chipotlanes" to accelerate its sales. Dutch Bros mainly focuses on drive-thru sales, but it provides walk-up windows and limited seating at some of its locations.
The similarities between Chipotle and Dutch Bros
Yet Chipotle and Dutch Bros have three similar strengths: Their comparable store sales are rising, they're consistently opening new locations, and their margins are expanding.
Chipotle's comparable store sales (which gauge its year-over-year sales growth in its locations open for at least 13 months) increased 19.3% in 2021 as it lapped its deceleration during the pandemic's height, then grew another 8% in 2022 and 7.9% in 2023. It expects its comps to rise by the mid-to-high single digits in 2024.
Dutch Bros' same shop sales (which gauge its year-over-year sales growth in locations open for more than 15 months) rose 8.4% in 2021, 1% in 2022, and 2.8% in 2023. It expects that figure to rise by the low single digits in 2024.
NYSE: CMG
Key Data Points
Chipotle increased its store count from 2,966 locations at the end of 2021 to 3,437 locations at the end of 2023. It expects to open 285 to 315 new locations this year.
Dutch Bros increased its store count from 538 shops at the end of 2021 to 831 shops at the end of 2023. It plans to open 150 to 165 new shops in 2024 as it continues its "fortressing" strategy of flooding its regions with stores to build its brand awareness, reduce its marketing expenses, and pull customers away from other coffee chains.
Chipotle's net margin rose from 8.7% in 2021 to 12.5% in 2023, and analysts expect that figure to rise to 13.1% this year. Dutch Bros' net margin improved from negative 24.3% in 2021 to positive 1% in 2023, and analysts expect it to more than triple to 3.5% this year.
Chipotle and Dutch Bros both expanded their margins in a tough inflationary environment by raising their prices. That pricing power could help both companies confidently open new stores as they grow their comparable store sales.
NYSE: BROS
Key Data Points
Which stock is cheaper?
From 2023 to 2026, analysts expect Chipotle's revenue and earnings per share (EPS) to grow at compound annual growth rates (CAGRs) of 14% and 21%, respectively. They expect Dutch Bros' revenue and EPS to rise at CAGRs of 23% and 182%.
Based on those expectations, Chipotle trades at 46 times forward earnings, while Dutch Bros has a much higher forward multiple of 88. But both stocks are trading at about 6 times this year's sales -- even though Dutch Bros is growing a lot faster than Chipotle.
Which stock is the better buy right now?
Chipotle is still a great long-term investment, but its higher valuations and less ambitious brick-and-mortar expansion plans make it a bit less appealing than Dutch Bros.
Dutch Bros needs to maintain its fortressing strategy without cannibalizing its own same-shop sales or relying too heavily on new store openings to drive its revenue growth. But it could have plenty of room to grow as it expands beyond the 11 states it operates in and disrupts legacy coffee chains like Starbucks (SBUX 1.16%). Chipotle also has room to grow as it gradually expands into Europe, but its upside potential is more limited.
For now, I expect Dutch Bros to stay ahead of Chipotle for at least the next few quarters as hopes for lower interest rates drive investors toward higher-growth plays again.
