The Fast Casual Comeback Tour

0:05Fast, casual stocks were smoked in 2025, but things have started to look up in the new year. We're digging into whether or not this is a real turnaround for food today on Motley Fool Money.

0:20Today is Tuesday, January 20th. Welcome to Motley Fool Money. I'm your host, Emily Flippen, and today I'm joined by Fool analysts, Sanmi Teo and Jason Hall to discuss the rebound in fast casual stocks, what's been driving it, and what consumer trade down behavior means for the category in the year ahead. Now, it's no surprise, but 2025 was a rough year for fast, casual stocks. Wingstop, Chipotle, Cava, and Sweetgreen all lost double-digit amounts of value in the year, 15%, 37%, 47%, and 78 % of their value, respectively. Now, obviously, that's a combination of concerns around valuation, trade-downs for budget-conscious shoppers, inflation, changing consumer behaviors, just name it, it's probably a result.

1:01But it does seem like something fundamentally did shift over the course of the past year. And Sunmeet, I want to start with you and what's been driving the weakness in fast casual. What do you think investors have gotten wrong over the past years that caused such a contraction in valuation? Yeah, you know, so fast casual valuations have become almost SaaS-like, you know, they were stretched beyond belief. You know, I think what investors underestimate is the value gap between fast casual and casual dining. You know, traditionally, fast casual was seen as better for you, food at a slightly premium price.

1:32And consumers are willing to pay this price because the food felt healthier, fresher. Over the past year, I believe these fast casual companies, they just got a little too aggressive with pricing and took it too far. We saw menu price inflation, fast casual outpace the broader industry. When a bowl at Cava or a salad at Sweetgreen pushes past $16 or$18 after delivery fees and tips, the consumer is going to start doing some new math. You know, meanwhile, casual dining has become a better value proposition, even one that consumers are willing to take despite health concerns or quality of food or whatnot.

2:09So I also suspect that GLP-1s may be at play a little bit here, but that's kind of a longer term thing. So that's what I think is happening. You know, the first time you mentioned to me, Sun Meat, we worked together here at the Motley Fool, and you said when GLP-1s came on the market, I'm concerned about what this means for food. I was like, I'm never concerned about Americans and eating. I don't care what drugs are on the market. Americans love to eat. As more time has passed, I do wonder if I was maybe overly dismissive of that trend, because I do think we'll start to see it showing up here and it could be impacting these fast casual stocks.

2:42While it did impact over 2025, I will say, Jason, 2026 has been, weirdly enough, a bit different. Now, we're only 20 days into 2026 so far, but fast casual stocks have rebounded really aggressively. I mean, we're just now entering earning season here. So it's not like we have results from any of these companies that would be causing it. But those same companies, Wingstop, Chipotle, Kava, Sweetgreen, they're all up double digits for the year. Is there anything that is explaining this sudden snapback to you? Maybe this is foreshadowing, but I think we could even work Starbucks into this conversation to some degree too.

3:17And there's a few factors at play here. And Sandmeet mentioned some of them. The valuations were certainly very aggressive at the beginning of the year, but they were that way for a reason. A lot of these businesses, Kava is a good example, Wingstop. And prior to really the past year and a half, we've seen Chipotle go through these periods of very, very high growth. Really good strong comps, like mid-single digit or even better in some cases. And the unit economics that those businesses tend to get have always been really, really good compared to the restaurant industry writ large. So those valuations were very, very high for those reasons, but then the growth went away and the market has reset expectations.

3:54So I think at the end of the year, we saw a little bit of accelerated, probably some tax loss harvesting going on with some sellers exiting those stocks towards the end of the year. Now, what have we seen more recently? Maybe some of those folks that sold to harvest those tax losses have decided, you know what, I'm going to reopen a position. They sold to harvest that tax loss, get past that 30-day window and buy back in. But I think maybe we see some momentum traders coming in. And then just some fundamental investors saying, hey, businesses like Chipotle, Wingstop, these have been great businesses over the long term, and they've been winning businesses over the long term.

4:30And investors have maybe started to move back in. Now, part of my personal view as an investor and analyst that's followed a lot of these businesses and this sector for over a decade is this feels like a lot of macro, you know, pressure on people's wallets and not necessarily just changing tastes. And I say just changing tastes because that's, we are seeing some things that are happening, but I think eventually the tide's going to turn favorable and the winning businesses return to being winning businesses, right? Winners continue to win, thinking about rule breaker traits. And the market's always looking forward.

5:03Investors are looking for what those businesses are going to be doing when they report later this month and early February for the most recent quarter. What are their guidances looking forward? So I think it's a little bit of all of those things that are playing. But for me, I think the big thing is that investors that are starting to buy, I hope a lot of those people are just seeing these decent fundamentals for some of these in terms of valuation and the wonderful businesses that they are being able to go back to their winning ways. In a sense, it's a story of comparisons. Like Sunmeat said, it's a value comparison of fast casual today versus the other option of the market.

5:37And then also the comparison of valuations, right? What we're seeing today versus where these markets have traded in the past. Up next, we're actually going to be talking more about that trade down in consumers and how grocery and convenience stores may be stealing the meals that used to belong to fast casual. So stick with us. Welcome back to Motley Fool Money. We're discussing the decline of fast casual food concepts and how consumers have been trading down in more cost-conscious environments. This is something that probably doesn't take any listeners by surprise. I think the only segment of eating out that has been growing over the past year has been what they call value-based food offerings for at least the outside of home food consumption industry.

6:12But it does beg the question of if consumers aren't eating at the Chipotle's or even McDonald's of the world, where are they eating from? And Samit, I want to pass it to you because I saw a stat the other day that really piqued my interest. There's a company that suggested their data said that 85 % of all consumers have tried to order food from convenience stores. In fact, Grubhub called 2025 the quote, year convenience stores became meal destinations. Does that track with what you see in the companies you follow? Oh yeah. And I'm glad you mentioned this because this is a thing that a trend that's at play when it comes to the restaurant industry in general.

6:49So here's a couple telling statistics. The share of consumers explicitly choosing deli prepared foods instead of a restaurant meal has more than doubles since 2017, jumping from 12 % to 28%. That's one. The other one, 23 % of shoppers admit they're stopping less frequently at fast food or fast casual restaurants specifically to buy these prepared meals instead. This plays right into a pick and shovel company that we've been looking at is Mama's Creations, ticker MAMA. Mama specializes in fresh, clean-labeled, prepared foods. Think deli-style meatballs, pastas, grab-and-go meals. They've been aggressively expanding into the food service sections of grocery stores, convenience stores, mass-market retail stores.

7:34They're in Costco's. That's big time. This gives consumers a chance to capitalize on convenience and freshness to satisfy their appetites. You can get it all by just going hopping over to your grocery store or these stores, which they're going to anyway, grabbing a meal. They're usually vacuum sealed, very freshly prepared, clean ingredients, minimal ingredients. And then they get like everything that they need to feed their families. Now, I will say I am one of those victims, I guess, if you can use that word of these free prepared meals and the grocery prepared food section of my grocery store.

8:11And I will say I I am increasingly buying them myself, whether it be from grocery stores or convenience stores. I'm certainly interested in learning more about Mama's Creations. But Jason, when you think about the shift that's happening in terms of that in consumer behavior, do you think that's going to be permanent? Or do you think Fast Casual is positioned for a comeback if and when the economy improves, for instance? If we think about Uber Eats and Grubhub, they've changed the game in many ways a lot of people didn't expect. I mean, here's the thing. Like besides Whole Foods a decade ago, who was going to eat grocery store sushi, you know, but it's, it's become far more prevalent right now.

8:51Um, there, there's no doubt about that. So I think that's kind of one of the law of unintended consequences. You order your, your delivery food on Uber Eats and then they give you the pop-up, you know, do you want to, you know, uh, uh, pick up a Slurpee from 7-Eleven on the way or a bottle of booze on the liquor store that's across the street? All of these things are choices that we didn't have more. So I think that has certainly increased the options, like the food options that people have, just at the tap of a food screen, or a phone screen, excuse me. But guys, competition is not new in the restaurant business, in the food business.

9:24It's core to it. And as I mentioned before, I firmly believe that macro, honestly, is probably the biggest win, not the only, but the biggest headwind for fast casual over the past year plus, and not necessarily changing consumer tastes or even more options that are available. So I think there's still a bright future for the winners in that space. Let's remember, the reason Chipotle has been a big winner and successful is its food has both been delicious and affordable, right? I'm sorry, but, you know, truck stop burritos and 7-Eleven sushi, they're not ever gonna be like known for the same kind of quality ingredients.

10:02And like, I know, I'm sorry, but like Kava, Chipotle, they're known for very, very high quality food. What's changed is the perception of value. Look at Brinker. Look at Brinker's Chili's, its largest restaurant chain. I think the comps were 18 % last quarter. Maggiano's were down, but their comps a year ago were like 20-something percent. Those businesses have done an exceptional job of creating these$15 multi-course meals. And there's a reality and a perception for a lot of the casual restaurants is why would I go stand in a line, pay all this money, wait 15 minutes in the line to get my food, and then go sit on a hard plastic table to eat or take it home when I can go to Chili's and sit down and get a better meal, a bigger meal for basically the same or less money.

10:56So these businesses have to shift perception back to their favor or they're going to return to the growth that they're capable of. I think that's a fair point. I will also say, I do think there's a shift of not only value perception, but also quality, Jason, to your point. I do think the perception of quality of that 7-Eleven sushi, so to speak, has actually changed. I mean, we see prepared foods at convenience stores growing in popularity because there is a perception of quality there. And meanwhile, the perception of quality with Chipotle in particular, I mean, this went viral on social media.

11:27People perceive the quality of food not being as good as it once was. I think Panera went through a very similar thing after they were brought private. But yeah, there's a combination there of perception and quality that certainly needs to change to drive people back to fast casual chains. So up next, we're going to be looking forward to 2026, evaluating whether or not companies are actually moving forward with those changes to make this area investable again, going through some of y 'all's favorite names in the fast casual space, and also discussing what a potential spinoff might tell us about what restaurants or companies are signing up for in terms of growth in the year ahead.

12:02Lots still to come, so please stick with us. Welcome back to Motley Fool Money. As we wrap up today's show, we're going to be looking at the perception of fast casual and its pipeline in the years to come to see if it's still an investable area for retail investors. We're going to be picking your brain, Sandmeet and Jason, for your favorite fast casual stocks to buy today. But first, we've discussed in the past how 2026 is shaping up to be a better year for IPOs in comparison to 2025. So I am interested in how this could impact the fast casual food industry. And Jason, You flagged for me that Jollibee's, which is a Philippine-based fast food company that's been expanding globally, we've talked about it here on the show before, they seem to be preparing to potentially spin off its international operations for a potential listing in the United States.

12:43It lacks, you could argue, the brand recognition of its domestic operations there in the Philippines and its home turf, but it is growing faster than its domestic counterparts. What do you think is the rationale behind this decision? So I think this year actually is a decade ago that Yum Foods, Yum Brands spun out its Chinese business. That's the owner of KFC, Taco Bell and Pizza Hut. And at the time, it made sense to spin that China business off for a lot of factors. And one of those was that it was very mature business in most of its markets. And that was the high growth opportunity. Stand that business up on its own with independent management and its own capitalization, access to capital markets, its valuation, multiple of the stocks, all of those things would be valued more appropriately.

13:26And it's weird because Jollibee is kind of in the same situation, but you kind of have to invert it. Jollibee has over 10 ,000 global locations across all of its brands. But in North America, it's less than 120. This is the growth opportunity for it. So by separating the business off, it has its own independent management, its own balance sheet, its own capitalization, and ideally that it would be viewed as and valued by the markets as a growth business. That'd be great for shareholders if they execute well on the growth strategy and they get a lot of traction and they're able to scale this up.

14:04It'd be great for the founder and his family who still own some 45 % of the business because it would grow their wealth as well. So I think for all of those reasons, really, you look at the kind of the Yum Brand spinoff of China is kind of the model. If they execute on it well, then it can be great. But what we don't know is, is Jolly Bee going to be in the U.S. like KFC had been for years and years and years in China? Only time is going to tell us that one. Sadmeet, when I look in the year ahead, I'm curious, what would cause companies to become investable again in your mind? I mean, is there anything that you're looking for specifically to show up in the metrics of these fast, casual companies and their report earnings to prove that a rebound is happening or even potentially not happening?

14:48A key metric is usually same-store sales. And the components of same-store sales are pricing and traffic. Much of what the same-store sales growth has been in the recent quarters has been pricing, as I was discussing earlier. I'm specifically looking for positive traffic comp trends. Because pricing has been, like I said, been going up and up and up for these fast casual companies. I think they've hit ahead. They're not going to be able to do that as much. What was happening in the prior quarters was traffic was down. People were coming into their stores less. Obviously, they're not going to spend much if they're not coming to the stores.

15:27So what I'm seeing is if I see revenue going up, but traffic going down, that's going to be a warning sign for me still and a sign to pause. If I start seeing revenue flat, but traffic up, that's going to be a positive sign. It's generally too close to earning season for me to buy in right now. I don't like to buy too close to when the reports are coming out, but I'm going to be watching for these trends very closely. And if I start seeing fundamentals going up, but stock prices going down, that's going to be a green flag for me to start buying some companies like Chipotle, Wingstop, or Domino's.

16:01I like that. Okay. I know you said it's too close to earnings to buy now, and I totally respect that. But before we sign off here, I just have to put you on the spot and pretend like earning season isn't coming up. I want to do a quick lightning round. If you have a face favorite, fast, casual stock that, you know, gun to your head, you have to buy right now prior to seeing their earnings. I'm curious if any are standing out. Jason, I want to start with you. Yeah, I'm going to pull one that I foreshadowed earlier and that's Starbucks, which I think fits in this, in this bucket. And the thing is, yeah, sure.

16:32There's the trends, things that have been going on, the macro things. I heard from plenty of people that are like, you know, that my favorite Starbucks treat is just too expensive and I'm not buying it anymore, right? So that's happening. At the same time, the business has really had to refocus its operations and simplify. I've said before, I think their wonderful CEO who they stole from Chipotle is the best operator in food and beverage retail and is doing exactly the right things, simplifying the business, making it a better place for employees to be able to serve customers more quickly and putting and re-leveraging the way they use technology to serve the customer that's there versus the last customer that put in the order, because they might be 10 miles away.

17:15So we're seeing trends. They're not perfect. Things that Sammie talked about, traffic is still not where it was even a year ago, and certainly down from where it was two years ago, but it's stabilizing. And for around 20 times operating cash flow, I think it's really compelling. It looks expensive because they've booked some losses on the gap side based on some changes in their business. But on a cash flows basis, the business is very, very appropriately valued. You could maybe even say cheap based on the trends around the turnaround. I like that. I don't want to completely poo-poo your idea though, Jason, but I do have to say, I have to say, I now buy my coffee when I treat myself.

17:58I buy my coffee from my local convenience store. I go to Wawa to buy my coffee. I don't go to Starbucks anymore. So I'm part of the problem that Starbucks needs to fix. I have money and a gift card on my app that I have not spent. So Starbucks needs to win me back personally before I can start to invest in them again. That is a fair point. And that is certainly a challenge that they have to... The same thing with Chipotle. There's this perception that their average entree costs$5 more than it actually costs. These businesses have to fix those perceptions as much as the actual problems inside their doors.

18:32Certainly. I do think they can do it though. Sanmit, do you have an idea that stands out to you? Yeah, well, the obvious choice for me, I know, but I think I'm going to pivot here and I'm going to say Wingstop, ticker W-I-N-G. While it's not traditionally a fast casual restaurant, it is primarily a pickup and delivery business, solely focused on wings, chicken wings, chicken sandwiches now they have. And it's just a fantastic operator. operator. Like that's the thing that gets me with them. They operate small stores with minimal staff, you know, very simple menu with fantastic sauces, I think.

19:09And, you know, an easy, easy ordering menu and a food that's translatable across the world that is often consumed with sporting events and special celebrations, mostly sporting events, which are throughout the year now. So, and they're, they're growing their, their growth trajectory to me seems a lot faster, higher than a, even though Chipotle, which I still love. Wingstop has a lot of white space in, in, in the United States internationally, and with maybe even expanding some of their, their foods, which they do their menu, which they do at a, at a, at a moderate pace. Um, so I, I really like Wingstop.

19:51I do too. And their franchise model, to your point, really allows them to move quicker than company-owned models. And that is certainly a benefit to Wingstop. So Wingstop and Starbucks will certainly follow them. Hope they have a better 2026 than they did 2025. Sunmeet and Jason, thank you both so much for joining today. And listeners, thank you for tuning in. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows the Motley Fool editorial standards and is not approved by advertisers.

20:24Advertisements are sponsored content and provide for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Samit Deo, Jason Hall, and the entire Motley Fool Money team, I'm Emily Flippen. We'll see you tomorrow.