Jason Hall (3:11)

Maybe this is foreshadowing, but I think we could even work Starbucks into this conversation to some degree too. And there's a few factors at play here and Sandme 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. Cava is a good example. Wingstop and prior to really the past year and a half we, 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, for those reasons. But then the growth went away and the market has reset expectations. So I think kind of 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 and 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 pressure on people's wallets and not necessarily just changing tastes. And I say just changing tastes because 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 be winning businesses. Right. Winners continue to win. Thinking about rule breaker traits and the market's always looking forward. Investors 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 guidance is 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 and in terms of valuation and the wonderful businesses that they are being able to go back to their winning ways.

Emily Flippen (5:30)

In a sense, it's a story of comparisons. Like Sunmeet said, it's a value comparison of fast casual today versus the other option on the market and 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.

Fundrise Advertiser (5:52)

Support for the show comes from Fundrise. Investing in companies already in The S&P 500 can sometimes feel like you're being served someone else's leftovers. It's still a great meal, but it's hard not to imagine what the food tasted like when it was fresh out of the oven. Historically, only venture capital investors were served access to the best tech companies in the world that had not gone public yet. And that meant the rest of the world simply had to sit on their hands and wait for an ipo. Fundrise says they're completely upending that dynamic with its new venture capital product. With just a $10 minimum investment, Fundrise's mission is to give everyone the access required to invest in the best tech and AI companies before they go public. There's nothing wrong with leftovers, but now if you want with fundrise, you can take a seat at the table alongside the biggest names in tech investing. Visit fundrise.com fool to check out Fundrise's venture portfolio and start investing in minutes. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. This is a paid advertisement.

Emily Flippen (6:54)

Welcome back to Motley Fool Money. We're discussing the decline to 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. But 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?

Sanmeet Deo (7:44)

Oh yeah, and I'm glad you, 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. So here's a couple telling statistics. Um, you know, the share of consumers explicitly choosing deli prepared foods instead of a restaurant meal has more than double to 20 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. You know, this kind of plays right into a pick and shovel company that, that I've been, you know, we've been looking at is Mama's Creations Ticker Ma. Ma. You know, Mama specializes in fresh, clean, label prepared, 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. I mean they're in Costco's. That's big time. So you know, this gives consumers a chance to capitalize on convenience and freshness, you know, to satisfy their appetites. So you can kind of 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.

Emily Flippen (9:04)

Now I will say I am one of those victims, I guess if you can use that word, of these pre prepared meals in the grocery prepared food section of my grocery store. And I will say 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, 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?

Jason Hall (9:33)

For instance, if we think about Uber Eats and grubhub, they've, 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. There's no doubt about that. So I think that's kind of one of the law of unintended consequences. You order your delivery food on Ubereats and then they give you the pop up. You know, do you want to, you know, pick up a Slurpee from 711 on the way or a bottle of booze on the liquor store that's across the street? Like 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 on their phone screen. Excuse me, but guys, competition is not new in the, in the, in the restaurant business, in the food business. It'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 Truck stop burritos and 711 sushi, they're not ever going to be known for the same kind of quality ingredients. I know, I'm sorry, but Kava Chipotle, they're known for very, very high quality food. What's changed? What's changed is the perception of value. Look at Brinker, look at, look at Brinker's Chili's, it's 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 like these $15 like 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. So these businesses have to ship shift perception back to their favor or they're going to return to the growth that they're capable of.

Emily Flippen (12:06)

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, to your point, I do think the perception of quality of that 711 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. People 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 yalls 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. Lots still to come, so please stick with us.

Home Depot Advertiser (13:06)

Save on appliances at the Home Depot with up to $1,000 off plus up to an extra $500 off select appliances like Whirlpool that can and keep up with your busy routine. The Home Depot has Whirlpool Laundry appliances with Fan Fresh. This feature fans and tumbles your laundry after it's done to help keep your clothes fresh until you're ready to grab them. Shop now and get up to $1,000 off plus free delivery on select appliances at the Home Depot. How doers get more done Free delivery on appliance purchases of $999 or more offer valid January 8th through the 28th US only C store online for details.

Emily Flippen (13:36)

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. Retail investors. We're going to be picking your brain, Sunmeet 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 Jollibees, 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. It la, 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?

Jason Hall (14:27)

So I think it 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, valuation, multiple of the stocks, all of those things would be valued more appropriately. And 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, 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. It'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 spin off of China, it's kind of the model. If they execute on it well then it can be great. But what we don't know is is Jolly Jollibee going to be in the US like KFC had been for years and years and years in China. Only, only time's going to tell us.

Emily Flippen (16:03)

That One sadme, 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?

Sanmeet Deo (16:20)

A key metric is usually same store sales and the components of Sam store sales are pricing and traffic. Much of what the same store sales growth has been in the, in the recent quarters has been pricing. As I was discussing earlier, I'm specifically looking for positive comp store trends. Excuse me, positive traffic comp trends. You know, because pricing has been, 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. So what I'm seeing is if, if I see revenue going up but traffic going down, that's going to be a warning sign for me still. And assigned a pause. If I start seeing revenue flat but traffic up, that's going to be a positive sign. You know, it's generally too close to earning season for me to buy in right now. I don't like to buy too close to, 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.

Emily Flippen (17:34)

I 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, I just have to put you on the spot and pretend like earnings 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.

Jason Hall (17:58)

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, there's the trends, things that, 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. So we're seeing trends. They're not perfect things that Sami talked about. Traffic is still not where it was even a year ago and certainly down from what 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.

Emily Flippen (19:20)

I like that. I don't want to completely poo poo your idea though, Jason. But I do have to do it a little bit.

Home Depot Advertiser (19:25)

Come on.

Emily Flippen (19:26)

I have to say I now buy my coffee when I treat myself. I 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.

Jason Hall (19:51)

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.

Emily Flippen (20:05)

Certainly I do think they can do it, though. Sun me. Do you have an idea that stands out to you?

Sanmeet Deo (20:09)

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 focus on wings, chicken wings, chicken sandwiches. Now they have and it's just a fantastic 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, and you know, an easy, easy ordering menu and a, a food that's translatable across the world that is often consumed with sporting events and, 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, Wingtop has a lot of white space 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. So I, I really like Wingstop.

Emily Flippen (21:24)

I do too. And I, their franchise model, to your point, really allows them to move quicker than company owned models. And, 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. Advertisements are sponsored content and provide for informational purposes only. To see our full advertising disclosure, please check out our show notes For Sammy Theo, Jason hall, and the entire Motley fool money team. I'm Emily Flippin. We'll see you tomorrow.

Sanmeet Deo (22:10)

It.