These companies provide quality and convenient food to consumers on the go, but is the salad or burrito chain a better investment?
Dec. 15, 2021
Currently, one in seven Americans eats fast food every day, and the fast-food market continues to expand and is set to reach $937 billion by 2027. The market size means there is plenty of room for growth, particularly as people seek healthier options but which of these companies is a better buy today?
Sweetgreen: Bull v.s. Bear arguments:
Sweetgreen (NYSE: SG) is mission-driven, aiming to “build healthier communities by connecting people to real food” and currently operates 140 restaurants serving salads.
The company is positioning itself as a category-defining food brand, with the CEO stating, “we want to build the McDonald’s of our generation”. The company has strong brand awareness among Millennials and Generation Z, who are arguably more health-conscious and digitally native. Sweetgreen plays into both these trends, and its mobile app has helped drive digital sales, which accounted for 75% of revenue in 2020.
Sweetgreen has a 1.3 million active customer base and a net promoter score of 78, demonstrating that its customers love the food. It has expanded its menu offering, which has fueled sales of $243 million for the first nine months of 2021.
The company’s last funding round valued it at approximately $1.8 billion in January 2021, and today after its IPO, its valuation now stands at roughly $3.2 billion, which is a significant increase. It has also faced headwinds in urban centers due to a decline in footfall caused by COVID-19. It operates at a loss that expanded significantly in 2020, reaching $141 million.
Chipotle Mexican Grill: Bull v.s. Bear arguments:
Chipotle Mexican Grill (NYSE: CMG) or Chipotle is an American fast-casual chain specializing in Mexican food such as burritos, tacos, and more.
The company has faced challenges such as an E.Coli outbreak in 2015, but under Brian Niccol’s leadership since 2018, the company has been brought back to its mission of “Food With Integrity”.
Unlike other players in the restaurant industry, the company has prospered during the pandemic due to its investments in digital. This has paid off with impressive results in Q3 2021, with revenue increasing by 21.9% year-over-year, reaching $2 billion. The company is also profitable, reporting a net income of $204.4 million in the quarter.
There is still an enormous opportunity for growth as it currently operates just under 2,900 restaurants in the United States, United Kingdom, Canada, Germany, and France. This pales in comparison to fast-food giant McDonald’s, which has roughly 38,000 locations in over 100 countries.
Chipotle is not immune to wider challenges in the industry, such as labor shortages, supply chain issues, and wage increases. Management also stated that they are unsure of how temporary or long-term these challenges are and could put pressure on the stock.
So, which stock is a better buy right now?
Chipotle appears to be a better buy today, as it has proven its ability to grow at scale over many years, and the future looks bright under Niccol’s leadership.