Investment Opportunity? The Fastest Growing Chain Restaurants

Joe Raedle/Getty Images

Joe Raedle/Getty Images

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You’ve seen a hot new chain restaurant open in your area, looked over the lines going out the door, and wondered if getting yourself a slice of the ever-growing restaurant’s pie would be a sound investment. Perhaps you have decided that it is time to turn the tables on your fast food addiction and get a return on investment for all that cash you’ve been handing over for years.

If you are looking to get into high-growth areas, a good place to start your research is the Nation’s Restaurant News (NRN) and their 2015 top-hundred list. The list ranks chain restaurants for year-over-year sales growth. You can also get basic statistics there — total units, sales and sales growth, and rankings — and use that to cull your list down for further research into investment choices.

According to NRN, simple, healthy, and fast-casual dining is in for 2015, along with an emphasis on chicken. The top of the list, Jersey Mike’s Subs, featured year-over-year sales growth of almost 30%. It is joined in the list by fellow limited service/sandwich chains Firehouse Subs and Jimmy John’s. Chicken is the specialty of Raising Cane’s, Zaxby’s, Wingstop, and Buffalo Wild Wings.

The remaining three in the top ten are Yard House (known for its craft beer selection), Chipotle’s Mexican Grill, and Casey’s General Stores — a gas station/convenience store chain that has carved out a niche with its well-advertised pizza offerings, especially in smaller towns and rural areas.

What’s out, according to NRN? Pizza, burger chains, and “varied-menu concepts,” or those trying to maintain wide menu options or a more full-service approach, are having a more difficult time. NRN lists Five Guys, Little Caesars, and Cheddars as decent performers that have been surpassed by the more targeted and simple fast-casual brands.

Contrast the NRN list with a recent Forbes article ranking chain restaurants by same-store sales growth. They listed 14 top restaurants with at least 5% growth in Q1 2015, and the only chain making both lists is Chipotle. The difference in the lists is that the Forbes list by nature includes more established chains, looks more at same-store growth instead of overall expansion of outlets, and covers a shorter timeframe.

Who tops the Forbes list? Domino’s Pizza, which has rebranded itself extensively over the past few months — including a TV ad blowing up its iconic signs and dropping “pizza” in the replacement. Domino’s is trying to establish itself with other Italian dishes instead of just pizza, and that effort seems to be working so far.

Shake Shack is also high on Forbes’ list, but with caveats that the stock may be overvalued. Other chains in the Forbes list include well-established standbys such as Dave and Buster’s, Jack in the Box, Popeye’s, Sonic, Papa Murphy’s, Bojangles, and Cracker Barrel.

Use these lists to choose companies that intrigue you and then do deeper research on your choices, especially expansion projections. Do they seem to be growing too fast or in random patterns, or are they following a sound strategy? Are new stores maintaining solid business after the grand opening?

Also, look at your investing goals. Are you trying to maximize growth with the hot new chain, or are you looking for steadier performance with more established chains and corporate ownership?

Finally, even though it technically should not matter, have a meal at a few different locations if possible. Are the stores clean and neat? Are you treated well by the staff? Is the food properly prepared? One bad experience shouldn’t turn you off, but several bad experiences could be a warning sign that growth will not last in the long term. Both diners and investors have plenty of great alternatives.

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