The restaurant industry can be notoriously challenging and competitive, but it can also be a very lucrative business for well-run companies delivering the right menu and experience to their customers. Chipotle Mexican Grill (NYSE:CMG), Buffalo Wild Wings (NASDAQ:BWLD), and Domino's Pizza (NYSE:DPZ) are positioned for growth for years to come.
Chipotle is spicy
Chipotle Mexican Grill is one of the most explosive growth stories in the restaurant business over the last few years. The fast-casual category is a booming niche, and Chipotle is a growth leader in that segment.
The company's "Food With Integrity" approach to Mexican cuisine is based on a simple menu and a strong focus on high-quality natural ingredients. Chipotle is a remarkably efficient operator; the company has one the highest throughputs in the business, which means it's able to move its customers quickly through its lines to sustain rapid growth and provide a high-quality service.
Sales increased by 18% to $826.9 million on the back of 37 new restaurants and a big jump of 6.2% in comparable-restaurant sales during the third quarter of 2013. Even as Chipotle continues expanding its store base, comparable-sales performance shows that demand remains healthy and there is no sign of saturation or cannibalization at this stage.
The company has 1,539 restaurants as of the end of the last quarter, and it plans to open between 180 and 195 new restaurants during 2014. International growth, product innovation, and expansion into new areas like Asian food and pizza with its ShopHouse and Pizzeria Locale concepts are early stage opportunities providing a lot of room for growth in the coming years.
Buffalo Wild Wings is simple and effective
Buffalo Wild Wings offers a simple and effective proposition to its customers: tasty food, plenty of beer options, and widely available TVs to watch sports. Simplicity is working quite well for the company judging by financial results: Buffalo Wild Wings has increased sales at 25.8% per year through the last five years, and earnings per share have grown at 22.7% annually over that period.
For the third quarter of 2013, the company delivered a strong increase of 27.9% in revenues while earnings per share jumped by a whopping 65.4% year over year. Same-store sales increased 4.8% at company-owned restaurants and 3.9% at franchised restaurants during the quarter.
The company is implementing a new "wing by the portion" program to keep costs under control and ensure that customers receive a more consistent amount of chicken in their order rather than a fixed number of wings. Like Chipotle, Buffalo Wild Wings is also venturing into pizza, with PizzaRev.
The company had 534 franchised restaurants and 415 company-owned stores for a total of 945 stores as of the end of the third quarter. In 2014, the company plans to open 45 company-owned and 40 franchised locations in the United States and Canada, and it expects international franchisees to open at least 10 restaurants across the globe during the year.
Delivering global growth and pepperoni pizza
With 10,566 stores in more than 70 countries, Domino's Pizza is a recognized world leader in pizza delivery. The company delivers more than 1 million pizzas per day on a global basis, and it makes more than half of its sales from outside the U.S.
Global exposure has been a big plus for investors in Domino's over the years: International same-store sales have increased at an average 5.6% annually with no negative years from 1994 to 2012. Sales have also improved materially in the U.S. since 2010, when the company came out of the recession with a renewed menu.
Performance remains strong as of the last quarter with a year-over-year increase of 18.6% in earnings per share during the third quarter of 2013. Domestic same-store sales increased by 5.4%, while same-store sales at international locations grew by 5% during the quarter, marking the 79th consecutive quarter of international same-store sales growth for the company.
Management believes it has room to open at least 2,500 new stores in the company's top 10 markets, and that doesn't even include the opportunities in other countries where Domino's is still in its initial growth stage.
When investing in such a competitive industry as restaurants, choosing the right companies is of utmost importance. Chipotle, Buffalo Wild Wings, and Domino's Pizza know what their customers want, and they are capitalizing on their opportunities while generating delicious returns for shareholders. Investors looking for well-managed companies with superior growth prospects may want to consider picking any of these options from the menu.