Motley Fool Money Podcast Summary
Episode: Can Toast Thrive in the Restaurant Renaissance?
Release Date: July 14, 2025
Host/Author: The Motley Fool
Hosts: Tim Byers and Rick Benares

Introduction to the Restaurant Sector's Resurgence

Tim Byers opens the episode by addressing the unexpected positive trends in the restaurant industry despite fluctuating economic indicators. He presents the Restaurant Performance Index, highlighting a 0.4% increase in May—a third consecutive month of growth. Tim poses a critical question to Rick Benares about the potential sustainability of this upward trend amidst recent economic uncertainties.

“We've had weird economic numbers and yet restaurants are on the rise.”
— Tim Byers [00:05]

Analyzing the Restaurant Performance Index

Rick Benares dives into the surprising growth of the restaurant sector. He contrasts the current positive indicators with previous struggles faced by major chains like Sweetgreen, Starbucks, Applebee's, IHOP, Papa John's, Pizza Hut, and KFC, all of which experienced multiple quarters of negative comparable sales (comps).

“It's a matter of will it stick. And that's the biggest thing...”
— Rick Benares [01:08]

Rick emphasizes that the Restaurant Performance Index not only shows three consecutive positive months but also surpasses the 100 mark, indicating genuine expansion rather than a temporary bounce back. However, he notes caution as only a third of restaurant owners remain optimistic about sustained growth six months ahead.

The Role of Toast in the Restaurant Ecosystem

Tim shifts the discussion to Toast, a prominent player in the restaurant technology sector. He references data from Ticker Trends, noting significant increases in daily average users of the Toast mobile app and a 20% year-over-year rise in point-of-sale web traffic. Tim questions whether Toast can be considered a bellwether for the restaurant industry.

“Should we consider Toast to Bellwether for restaurants? Because we are going to be debating that.”
— Tim Byers [02:12]

Rick Benares responds by suggesting that while Toast is an excellent example within its niche (point-of-sale systems), it might overstate the industry's overall health due to its rapid growth. He cautions that Toast's success doesn't universally translate to all restaurant operators.

“Toast to me, is the best in class for what they do, and that is the point of sale system.”
— Rick Benares [02:56]

Innovations Driving Restaurant Success

Tim highlights innovative trends in the restaurant industry, mentioning Chipotle, Wingstop, and Sweetgreen as leaders in digital ordering and operational efficiency. He asks Rick which innovation he finds most promising.

“I mean, Sweet Green, with its infinite kitchens. Are you expecting more restaurant innovation here, Rick?”
— Tim Byers [04:29]

Rick Benares expresses particular enthusiasm for Sweetgreen's "infinite kitchen" concept, which leverages automation to enhance efficiency and scalability. He points out that such innovations allow companies like Sweetgreen to handle complex orders with higher accuracy and scalability, setting them apart from local competitors.

“Sweet Green is one I'm really excited about, because this whole infinite kitchen thing...”
— Rick Benares [04:29]

Key Metrics for Restaurant Investors

Tim introduces the importance of specific metrics when investing in restaurant companies, particularly focusing on "comps" (comparable restaurant sales). He seeks Rick's expertise in explaining these metrics to potential investors.

“What are the metrics that matter most here? And I'm going to hit you with a few of them.”
— Tim Byers [05:19]

Rick Benares breaks down "comps" as a crucial indicator of a restaurant's health, explaining that it measures the sales growth or decline of comparable establishments over a year or more. He outlines the factors influencing comps, including foot traffic, menu pricing, and menu shifts toward higher-priced items.

“Comps is comparable restaurant sales. It's how the restaurants are around for at least a year...”
— Rick Benares [05:49]

Growth Through Expansion and Innovation

The conversation shifts to growth strategies, particularly the balance between expanding the number of locations and innovating the menu to drive higher customer spending. Tim and Rick discuss how companies like Chipotle have successfully navigated this balance, leading to significant revenue and comparable sales growth.

“The two tiers... affordable expansion and menu innovation.”
— Tim Byers [10:02]

Rick Benares cites Chili's as an example of successful growth without significant expansion, highlighting their impressive comparable sales growth despite not adding many new locations. He contrasts this with Cava, which, despite strong revenue growth, saw modest comps due to limited expansion.

“Chili's... back to back quarters of 31% growth in comps.”
— Rick Benares [08:25]

Dueling Fools: Bull vs. Bear on Toast

The segment transitions into a Dueling Fools debate focused on Toast. Rick presents the bullish case, emphasizing Toast's comprehensive service offerings, substantial client base growth, and resilience during challenging periods like the COVID-19 pandemic.

“Toast is a cheat code. It's a one stop shop that lets any operator hit the ground running.”
— Rick Benares [12:28]

Conversely, Tim outlines the bearish perspective, highlighting risks such as lack of pricing power, potential input cost increases, and valuation concerns. He points out that Toast’s revenue per location has plateaued and that external economic factors could impact their growth trajectory.

“Toast doesn't have pricing power... it's priced for years of higher than average growth.”
— Tim Byers [15:49]

Trivia and Final Thoughts

The hosts engage in a trivia segment discussing the world's busiest restaurant by average revenue per location, concluding with notable mentions of Chick-fil-A and emerging competitors like Chipotle and Cava, which are approaching similar revenue figures.

“Chick Fil A, when measured by average sales per restaurant is about 8 point...”
— Tim Byers [20:49]

Rick Benares advises investors to "stay hungry," encouraging them to seek out innovative companies with high growth potential and to trust their instincts when evaluating restaurant investments.

“Stay hungry... look for companies with a lot of growth.”
— Rick Benares [22:12]

Conclusion

The episode underscores a cautiously optimistic outlook for the restaurant industry, driven by technological innovations and strategic growth initiatives. However, it also highlights the potential risks associated with market saturation and economic volatility. The debate on Toast exemplifies the broader considerations investors must weigh when evaluating opportunities within this dynamic sector.

Notable Quotes:

• “It's a matter of will it stick. And that's the biggest thing...” — Rick Benares [01:08]
• “Should we consider Toast to Bellwether for restaurants? Because we are going to be debating that.” — Tim Byers [02:12]
• “Toast to me, is the best in class for what they do, and that is the point of sale system.” — Rick Benares [02:56]
• “Stay hungry... look for companies with a lot of growth.” — Rick Benares [22:12]

Note: This summary omits advertisements, intros, outros, and non-content sections to focus solely on the substantive discussions and insights presented during the episode.