There are compelling reasons to invest in Chipotle Mexican Grill (NYSE: CMG) and Starbucks (NASDAQ: SBUX), as both are familiar brands and prominent consumer hotspots. In the first half of 2023, Chipotle’s shares surged by 53%, whereas Starbucks’ stock remained relatively steady compared to the beginning of the year.
As two of the most successful players in the restaurant industry, choosing the superior stock to invest in between Chipotle and Starbucks is a challenge. Let’s take a closer look at both.
Exploring the Pros of Investing in Chipotle
Chipotle, the trailblazer in the fast-casual dining scene, is a hard choice to resist. From 2017 to 2022, its revenue saw a compound annual growth rate of 14%. Even amidst the catastrophic year for the restaurant industry in 2020, Chipotle’s sales rose by 7.1%.
Revenue in the first quarter of 2023 (ending March 1) increased 17.2% compared to last year, with same-store sales climbing 10.9%. Despite a tumultuous economic environment, Chipotle is on the rise, with its total stores currently at 3,224 and a long-term projection of 7,000 outlets across North America.
Despite inflationary pressures hampering most businesses, Chipotle has flourished. Higher menu prices have expanded its profit margins without impacting the demand for its favourite food items. A robust digital foundation has also been crucial to Chipotle’s success, particularly its reward program, launched in 2019, and accelerated use of its mobile app during the pandemic.
Delving into the Case of Starbucks
Starbucks, a company largely dependent on daily commuters, experienced a more tumultuous journey during the pandemic. As public health restrictions began to lift, the U.S. market recovered relatively quickly, whereas recovery in China, Starbucks’ most significant growth market, lagged due to extended lockdowns.
Nevertheless, the recent 3% same-store sales growth in China for the fiscal 2023 second quarter (ending April 2) will provide a short-term boost to Starbucks’ overall business. The company currently operates 6,243 locations in China, generating $764 million in the last quarter.
Starbucks has also effectively leveraged technology through its reward program launched in 2009, with 30.8 million active members in the last 90 days. This, coupled with the company’s longevity and brand strength since its first store opening in 1971, makes Starbucks a potentially long-term investment.
The Preferred Investment Depends on Individual Priorities
Choosing between these two leading restaurant stocks is a complex decision. Investors who prefer growth might favour Chipotle, despite its steep valuation. On the other hand, investors prioritizing stability and a more conservative valuation, albeit with potentially slower growth, might find Starbucks the optimal choice.
Chipotle and Starbucks offer enticing investment opportunities with different strengths. Chipotle offers a compelling growth trajectory bolstered by solid financials and an expanding footprint. On the other hand, Starbucks provides robust brand recognition, a solid loyalty program, and the promise of steady long-term gains. Ultimately, the choice between these two titans of the restaurant industry hinges on your investment objectives: growth versus stability. Hence, conducting thorough research and consulting with a financial advisor is recommended before deciding.
