It's been a tremendous year for Chipotle Mexican Grill (CMG 2.72%). It's accelerated comparable sales growth, a measure of sales from locations open at least one year, from 9.3% to a whopping 13.4% over the past two quarters, bucking severe weather trends. This ridiculous growth, combined with the growth in the fast casual sector, has lead to nearly every restaurant being compared to Chipotle.
Despite bleak restaurant sales, Chipotle is not the only compelling restaurant investment. Two less discussed restaurants, Red Robin Gourmet Burgers (RRGB 4.87%) and Buffalo Wild Wings (BWLD +0.00%) are killing it.
Burger bonanza
These days, casual dining restaurants are doing downright awful. With the influx of fast casual chains, mid-level customers are finding quality food, at a cheaper price. But don't tell that to Red Robin, the burger giant just issued earnings that look downright tasty.
The stock rose 12% after beating first-quarter earnings-per-share estimates by a dime. Same-store sales jumped 5.4%, with revenue soaring 11%. Red Robin is doing well because it's a national chain that offers high quality gourmet burgers, which is actually not widely available. Think about it, no other national casual dining chain offers a wide selection of gourmet style burgers. Only Five Guys and a few others offer high quality burgers on a national level, but those fast service chains don't offer you a chance to have a drink or watch a game. Red Robin's endless fries and fun atmosphere are just icing on the cake.
Red Robin has won Zagat's award for the Best Burger in the Full Service category for four consecutive years. By offering the quality of a "neighborhood burger joint" and nationwide availability and familiarity, Red Robin fills a huge gap in the market.
With great burgers, a great customer loyalty program, and fun menu items (beer milkshake anyone), Red Robin is giving customers good reasons to come back to their stores. Earnings have marched consistently upward over the past five years; look for this restaurant to continue defying the casual dining swoon.
RRGB Normalized Diluted EPS (Quarterly) data by YCharts
Going wild
It surprises no one that Buffalo Wild Wings is doing quite well. For the first-quarter of 2014 sales were up 21%, same-store sales increased 6.6% at company-owned restaurants and 5% at franchised restaurants. Wing costs for the quarter were down 35% year over year, bucking recent food cost increases, and profit was up 71%. This is, in-part, thanks to a new pricing strategy that distributes wings based on weight, rather than numbers, but that doesn't tell the whole story.
Buffalo Wild Wings has been on a multi-year tear for a simple reason. Like Red Robin, it offers something that no competitors do on a national (and international) scale. While there may be fun neighborhood wing joints, there isn't an option that's available nationally. This nationwide familiarity is, once again, a tremendous edge. When customers go out to eat, familiarity of a chain makes it easier for everyone to "agree" and customers are always more likely to choose an option that's consistently good than an unknown.
Buffalo Wild Wings only real nationwide competitor is Hooter's, and it blew past them years ago because it offers a family friendly experience. You can take your kids with you to Buffalo Wild Wings and still have a good time; please do not try and do the same at Hooter's.
With over 1,000 locations, Buffalo Wild Wings does face the risk of over-saturation. However, a new pizza concept does offer some new growth possibilities, and the mega trend of sports should help B-Dubs management continue to grow its revenue per store.
How all of this can make you a better stock-picker
Well, for starters we know that there are other options for a restaurant investment than Chipotle. More importantly, they share some common traits with Chipotle. All three have a clear brand message, rabid fans and, most importantly, a lack of competitors.
While many restaurants can grow while being in a hyper-competitive space, you'd still rather have less competitors. These three restaurants are offering something on a national scale that no one else does well. Not only do these stocks merit consideration, but also looking for similar traits in other businesses can make you a better stock-picker.
