The restaurant industry is notoriously challenging and competitive, but it can also be a very lucrative business for well-managed companies that know how to please their customers. Chipotle Mexican Grill (CMG 0.13%), Starbucks (SBUX +0.78%), and Buffalo Wild Wings (BWLD +0.00%) are generating delicious growth rates for shareholders, and they have what it takes to reward investors with succulent gains in the years ahead.
Chipotle: The growth leader among high-growth restaurants
Fast-casual restaurants are doing much better than traditional fast-food players, and Chipotle Mexican Grill is an undisputed growth leader in that particularly exciting segment. Success attracts competition, and the company is being hurt by rising food costs as it stays loyal to its "Food With Integrity" approach to Mexican cuisine, but Chipotle is still delivering extraordinary performance.
Source: Chipotle Mexican Grill.
Sales during the first quarter of 2014 grew by an impressive 24.4% year over year to $904.2 million. Comparable-stores sales jumped 13.4%, with increased traffic being the main driver behind this increase. Chipotle Mexican Grill opened 44 new restaurants in the last quarter, bringing the total restaurant count to 1,637 locations.
Considering demand strength, Chipotle has plenty of room to continue expanding its store base in the U.S. before reaching any kind of saturation point, and international markets are still practically untapped. The company is also experimenting with new concepts such as Asian cuisine and pizza with ShopHouse and Pizzeria Locale, respectively, so this growth story is far from over at this stage.
Chipotle will be raising prices "on average somewhere in the mid-single digits" to compensate for rising food costs, and this is always a risk to watch in the aggressively competitive restaurant industry.
However, considering the explosive growth rates Chipotle is enjoying, demand seems to be strong enough to absorb a moderate price increase, so investors in Chipotle should profit from both growing sales and improved profit margins in the medium term.
Starbucks keeps brewing profitable growth
Starbucks owned 20,519 stores around the planet as of the end the first quarter of 2014, and the company has reached a considerable level of market penetration in big markets such as the United States. However, growth remains exceptionally strong for the global coffee emporium.
Source: Starbucks.
Total sales during the first quarter of 2013 grew by 9% to $3.9 billion on the back of a 6% increase in comparable-store sales and 335 new stores opened during the period. Performance was strong across different geographies, comparable sales in both the Americas and EMEA grew by 6% during the quarter, and the China/Asia-Pacific region delivered an increase of 7% in comparable-store sales. Channel development sales grew by 10% during the quarter.
In addition to store base expansion, menu innovation is a considerable growth driver for Starbucks, and the company is leveraging recent acquisitions, such as Evolution Fresh, La Boulange, and Teavana, to broaden its portfolio of offerings.
Cold carbonated drinks and a new evening menu including alcoholic drinks are two other promising concepts that management will be rolling out to more stores over the coming months.
Menu innovation will probably provide a double boost to earnings, not only increasing sales, but also expanding profit margins, since it will allow Starbucks to generate more revenues with a relatively stable cost structure.
Buffalo Wild Wings offers tasty growth
Buffalo Wild Wings offers a simple and effective proposition to its customers: tasty chicken wings, plenty of beer options, and lots of big TVs to watch sports.
Source: Buffalo Wild Wings.
This has been a winning business model over the years. The company has produced an annual growth rate of 24.6% per year through the past five years, and performance remains remarkably strong as of the latest earnings release: Buffalo Wild Wings announced an explosive sales increase of 20.9% to $367.9 million during the quarter ended on March 30.
Same-store sales increased 6.6% at company-owned restaurants and 5% at franchised locations, and the company had 46 more company-owned restaurants and 55 additional franchised restaurants at the end of the quarter versus the same quarter in 2013.
Unlike Chipotle, Buffalo Wild Wings relies heavily on franchises for international growth, and this allows for rapid expansion in a capital-efficient way. Franchise partners are opening nine restaurants in Mexico, Saudi Arabia, the United Arab Emirates, and the Philippines over the coming months, and management is quite optimistic about international growth prospects: "International opportunity for Buffalo Wild Wings is just beginning, and we believe that we will achieve 400 international Buffalo Wild Wings restaurants in the next 10 years."
CEO Sally Smith believes Buffalo Wild Wings will ultimately have room for 3,000 restaurants, and the way things are going for the company, this sounds like a reasonable goal.
Foolish takeaway
When investing in such a challenging and competitive industry as restaurants, sticking with high-quality companies is of utmost importance. Chipotle Mexican Grill, Starbucks, and Buffalo Wild Wings have rewarded investors with yummy performance over time, and they are well positioned to satisfy your appetite for growing profits in the years ahead.
