When was the last time you went to McDonald’s?
If you answered “recently,” what is wrong with you? There are a million better restaurants out there, all just as quick, relatively affordable and will kill you a lot less slowly.
Unfortunately for McDonald’s, Burger King, and the like, these trendy restaurants are cutting into their bottom line. They offer better, fresher ingredients, better-looking locations (no red and yellow everywhere), and give restaurant-goers the impression that they’re eating healthier. They’re part of a growing trend called “fast casual dining,” a restaurant with the speed and efficiency of fast-food but the wholesome, not-so-terrible ingredients of a sit-down restaurant.
Best of all, you can invest in fast casual restaurants. While popular fast casual chains like Five Guys and Boston Market are privately owned (and not traded on the stock market), countless other chains are. Yet with an increasing minimum wage and lowering grocery costs, should you invest in them? Let’s take a look!
Fast casual restaurants are basically fast food restaurants with better quality ingredients and superior marketing.
McDonald’s food looks and tastes cheaply made. Heck, most of their stores do, too. Fast casual restaurants, however, pay a bit more attention to decor, while using fewer processed and/or frozen ingredients in their items.
Chipotle Mexican Grill, for example, is halfway between Taco Bell and your local dine-in Mexican restaurant.
Chipotle ($CMG) prides themselves on “clean” food without antibiotics and nasty additives. They also pay close attention to their suppliers’ practices and speak out against harmful farming trends like, well, pumping cows full of antibiotics. They’re arguably better for you than Burger King and McDonald’s, though their foods do often feature high levels of sodium. Unfortunately, the company lost over half their value in the last year-plus, but they’re up for the last year…by .15%.
Panera Bread offers healthy(ish) alternatives to burgers and fries.
Panera ($PNRA), a thirty-year-old company, sells soups, salads, sandwiches, and even pasta dishes at their 2000+ locations in North America. They recently removed all artificial additives like food coloring and sweeteners from their food. Analysts and investors alike are positive on the company’s future, as they recently introduced ordering from kiosks and mobile devices, which (sadly) replace the functions of human workers. Plus, their stock’s 14.59% increase in the last year is nothing to scoff at.
Shake Shack sells the same food as Burger King and McDonald’s, but their quality is second-to-none.
Shake Shack ($SHAK) started in New York City with a single location in Madison Square Park, and they’ve grown ever since. The company makes burgers, hot dogs, friends, and, of course, shakes, and their quality is comparable to that of a sit-down restaurant. This also lets them charge higher-than-normal prices on menu items. The company filed for IPO in 2014, and though the stock decreased by 22.64% since they went public, investors are mostly positive on the company’s future as they continue to add more locations.
Wingstop is exactly what it sounds like: a fast-casual chain specializing in chicken wings.
Wingstop ($WING) operates over 800 locations (including franchised locations) around the country. Seeing as fast-food wings are often low in quality, Wingstop specializes in tasty, better-quality wings with a variety of sauces. They also offer chicken strips and sides like fries, potato salad, and vegetables, if that’s your bag. In the last year, Wingstop’s stock increased in value by over 31%, though investors and analysts are mixed about the company’s future.
Instead of investing directly in a single fast casual chain, you could invest in a restaurant ETF.
A restaurant ETF invests in numerous restaurant stocks, giving you a percentage of a share (or shares) of each company. If the restaurant industry is doing well, restaurant ETFs do well, and vice versa. There are several restaurant ETFs, though few are as popular as $BITE, better known as The Restaurant ETF. $BITE owns holdings in fast casual and fast food restaurants, but it’s increased by 14.85% since the beginning of 2017.
Should you invest in fast casual restaurants? These restaurants are more appealing than McDonald’s, but more expensive. They’ll have to pay employees more as labor costs increase, but some of them are already experimenting with automating orders through kiosks (much to the chagrin of every fast casual worker). The cost of groceries is decreasing, leading more people to cook at home again. At the same time, the restaurant industry (as evidenced by $BITE) is doing pretty well right now.
If you think people will continue to eat out more and these fast casual chains will overcome the aforementioned obstacles, consider researching their financial statements and analyst predictions before investing. If you think that labor costs and decreasing grocery costs will keep people at home, you might want to look elsewhere.