The Fast Casual Comeback Tour
00:00Fast casual stocks were smoked in 2025, but things I've 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 Full Money.Today is Tuesday, January 20th. Welcome to Motley Full Money. I'm your host, Emily Flippen,and today I'm joined by full analysts, Sendmiteo, and Jason Hall to discuss the rebound in fast casualstocks, what's been driving it, and what consumer trade-down behavior means for the category in theyear ahead. Now, it's no surprise, but 2025 was a rough year.for fast casual stocks. Wingstop, Chipotle, Kava, and Sweet Green, all lost double digit amountsof value in the year, 15, 37, 47, and 78 percent of their value respectively. Now, obviously,
00:52that'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. But it does seemlike something fundamentally did shift over the course of the past year. And Sunmeet, I want to startwith you and what's been driving the weakness in fast casual. What do you think investors havegotten wrong over the past years that caused such a contraction valuation? Yeah, you know,so fast casual valuations have become almost SaaS-like, you know, they were stretched beyondbelief. You know, I think what investors underestimate is the value gap between fast casual anddining. You know, traditionally fast casual was seen as better for you food at a slightly
01:32premium price and consumers are willing to pay this price because the food felt, you know,healthier, fresher. Over the past year, I believe these fast casual companies, they just got a littletoo aggressive with pricing and took it too far. We saw menu price inflation, fast casual, outpacedthe broader industry. You know, when a bowl like Kava or a salad as sweet green pushes past$16 or $18 after delivery fees and tips, the consumer is going to start doing some new math.Meanwhile, casual dining has become a better value proposition, even one that consumers are willing totake despite health concerns or quality of food or whatnot. So I also suspect that GLP1s may beplay a little bit here, but that's kind of a longer term thing. So that's why I think is happening.
02:17You know, the first time you mentioned to me, Sunmeet, we worked together here at the Motley Fool.And you said when GLP ones came on the market, I'm concerned about what this means for food.And I was like, I'm never concerned about Americans and eating. I don't care what drugs are onthe market. Americans love to eat. And as more time has passed, I do wonder if I was maybe overlydismissive of that trend because I do think we all start to see it showing up here and it couldbe impacting these fast casual stocks. But it, well, 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 casualstocks have rebounded really aggressively. I mean, we're just now entering earnings season here. So,
02:58it's not like we have results from any of these companies that would be causing it, but those samecompanies, Wingstaff, Chipotle, Kava, Sweet Green, 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 conversationto some degree, too.And 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 werethat way for a reason.
03:25A 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 the years.periods of very, very high growth, really good strong comps, like mid-single-digit are even betterin 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.So I think kind of at the end of the year, we saw a little bit of accelerated, probably some taxharvesting going on with some sellers, exiting those stocks towards the end of the year.
04:04Now, what have we seen more recently? Maybe some of those folks that sold to harvest those taxlosses have decided, do you know what? I'm going to reopen a position. They sold to harvestthat tax loss, get past that 30-day window and buy back in. But I think maybe we see somemomentum traders coming in. And then just some fundamental investors saying, hey, businesses likeChipotle, Wingstop, these have been great businesses over the long term, and they've been winningbusinesses over the long term. And investors have maybe started to move back in. Now, part of mypersonal view as an investor and analyst that's followed a lot of these businesses and this sectorfor over a decade is this feels like a lot of macro, you know, pressure on people's wallets and not
04:45necessarily just changing tastes. And I say just changing tastes because that's, we are seeing somethings that are happening. But I think eventually the tide's going to turn favorable and the winningbusinesses return to being winning businesses, right? Winners continue to win, thinking aboutrule breaker traits. And the market's always looking forward. Investors are looking for what thosebusinesses are going to be doing when they report later this month and early February for the mostrecent quarter. What are their guidance is looking forward? So I think it's a little bit of all of thosethings 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
05:25evaluation 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 Sandmeet said, it's a value comparison of fast casualtoday versus the other option of the market. And then also the comparison of valuations, right,to 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 andconvenience stores may be stealing the meals that used to belong to fast casual. So stick with us.In a world full of noise, long-term thinking stands out. On the,the Capital Ideas podcast, Capital Group leaders explore the decisions that matter most in investing,
06:01leadership, and life. It's a rare look inside a firm that's been helping people pursue their financialgoals for more than 90 years. Listen to the Capital Ideas podcast from Capital Group, published by CapitalClient Group, Inc. Welcome back to Motley Full Money. We're discussing the decline to fast casualfood 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 onlysegment of eating out that has been growing over the past year, has been what they call value-basedfood offerings for at least the outside of home food consumption industry. But it does begthe question of if consumers aren't eating at the Chipolets or even McDonald's of the world,
06:40so where are they eating from? And so I want to pass it to you because I saw a stat the otherday that really peaked my interest. There's a company that suggested their data said that85% of all consumers have tried to order food from convenience stores. In fact, Grubhubbcalled 2025, the quote, year convenience stores became meal destinations. Does that track with whatyou see in the companies you follow? Oh, yeah. And I'm glad you mentioned this because this is a thing,a trend that's at play when it comes to the restaurant industry in general. So here's a coupletelling statistics. You know, the share of consumers explicitly choosing deli prepared foodsinstead of a restaurant meal has more than doubles since 2017, jumping from 12% to 28%. That's one.
07:24The 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 I've been, you know,we've been looking at is Mama's creations, ticker M-A-M-A.You know, Mama specializes in fresh, clean-label prepared foods.Think deli-style meatballs, pastas, grabbing-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.
07:56That'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.Now, I will say I am one of those victims, I guess if you can use that word, of these free-prepared
08:29meals in the grocery, the prepared food section of my grocery store.And I will say, I am increasingly buying them myself, whether it be from grocery storesor 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 consumerbehavior, do you think that's going to be permanent, or do you think Fast Casual is positionedfor a comeback if and when the economy improves?instance. If we think about Uber Eats and Grubhub, they've, they've changed the game in many ways
08:58a lot of people didn't expect. I mean, here's the thing. Besides Whole Foods a decade ago,who was going to eat grocery store sushi, you know? But 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.is you order your delivery food on Uber Eats,and then they give you the pop-up.Do you want to pick up a slurpee from 7-Eleven on the wayor a bottle of booze on the liquor store that's across?All of these things are choices that we didn't have more.
09:34So 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 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 bit, the biggest headwin for Fast Casual over the last year plus,
09:56and 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's been a big winner and successful is its food has both beendelicious and affordable, right?I'm sorry, but, you know, truck stop burritos and 7-Eleven sushi, they're not ever going to beknown for the same kind of quality ingredients.Whoa.I know.
10:25I'm sorry, but like, 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 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 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,
11:05pay all this money, wait 15 minutes in the line to get my food, and then go sit on a hard plastictable 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 shift perceptionback 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 valueperception, Jason, to your point, I do think the perception of quality of that 7-11 sushi,so to speak, is actually changed. I mean, we see prepared foods at convenience stores growing inpopularity because there is a perception of quality there. And meanwhile, the perception of quality
11:44with Chipotle in particular. I mean, this went viral on social media. People perceive the qualityof food not being as good as it once was. I think Panera went through a very similar thing afterthey were brought private. But yeah, there's a combination there of perception and quality thatcertainly needs a change to drive people back to fast casual chains. So up next, we're going to belooking forward to 2026, evaluating whether or not companies are actually moving forward with those changesto make this area investable again, going through some of y'all's favorite names,the fast casual space and also discussing what a potential spinoff might tell us about what restaurantsor companies are signing up for in terms of growth in the year ahead. Lots still to come, so please
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13:03sweater may be the most comfortable one that I own. It's light, soft, and it was a lot moreaffordable than you think quality cashmere would be. Stop waiting to build the wardrobe you actuallywant. Right now, go to quince.com slash Motley for free shipping and 365 day returns. That's a full year to wear it and love it.And you will. Now available in Canada, too. Don't keep settling for clothes that don't last. Go to QINCE.comslash Motley for free shipping and 365 day returns. Quince.com slash Motley. Welcome back to Motley fullmoney. 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,and meet and Jason for your favorite fast casual stocks to buy today. But first, we've discussed in thepast how 2026 is shaping up to be a better year for IPOs in comparison to 2025. So I am interested
13:54in how this could impact the fast casual food industry. And Jason, you flagged for me that Jollabies,which is a Philippine-based fast food company that's been expanding globally. We've talked about ithere on the show before. They seem to be preparing to potentially spin off its internationaloperations for a potential listing in the United States. It lacks, you could argue,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 behindthis decision? This year actually is a decade ago that Yum Foods, Yum Brands spun out its Chinesebusiness. That's the owner of KFC Taco Bell and Pizza Hut. And at the time, it made sense
14:34to spend that China business off for a lot of factors. And one of those was that it was very maturebusiness in most of its markets. And that was the high growth opportunity.that business up on its own with independent management and its own capitalization, access to capitalmarkets, valuation, multiple of the stocks. All of those things would be valued more appropriately.And it's weird because Jollybee is kind of in a same situation, but you kind of have to invert it.Jollybee 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,
15:17and ideally that it would be viewed as and valued by the markets as a growth business.That'd be great for shareholders if they continue to, if they execute well on the growthstrategy 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 businessbecause it would grow their wealth as well.So I think for all of those reasons, really, you look at the kind of the young brand spinoff of China.It's kind of the model.If they execute on it well, then it can be great.
15:49But what we don't know is, is Jolly Be going to be in the U.S. like KFC had been for years and years and years in China.Only time's going to tell us 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 in their report earnings to prove that a rebound is happening or evenpotentially not happening? A key metric is usually same store sales and the component, the componentsof samsor sales are pricing and traffic. Much of what the samsor sales growth has been in the recentquarters has been pricing, as I was discussing earlier. I'm specifically looking for positive comp
16:32store 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 forthese 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.
16:55So what I'm seeing is if I see revenue going up, but traffic going down, that's going to be a warningsign for me still.and a sign to pause. If I start seeing revenue flat, but traffic up, that's going to be a positivesign. You know, it's generally too close to earning season for me to buy in right now. I don't liketo buy too close to when the reports are coming out, but I'm going to be watching for these trendsvery closely. And if I start seeing fundamentals going up, but stock price is going down,that's going to be a green flag for me to start buying some companies like Chipotle, Wingstop,or Domino's. I like that. Okay, I know you said it's too close to earnings to buy.
17:32now, and I totally respect that. But before we sign off here, I just have to put you on thisspot. And pretend like earnings season is it coming up. I want to do a quick lightning round.If you have a favorite fast casual stock that, you know, gone to your head, you have to buyright now prior to seeing their earnings. I'm curious if any are standing out. Jason, I want tostart with you. Yeah, I'm going to pull one that I foreshadowed earlier, and that's Starbucks,which I think fits in this bucket. And the thing is, yeah, sure, there's the trends, things that havebeen 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?
18:10So that's happening. At the same time, the business has really had to refocus its operationsand simplify. I've said before, I think their wonderful CEO who they stole from Chipotle is thebest 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 morequickly and re-leveraging the way they use technology to serve the customer that's thereversus the last customer that put in the order because they might be 10 miles away.So we're seeing trends.They're not perfect.
18:46Things to Sandy talked about.Traffic is still not where it was even a year ago and certainly down for what it was twoyears ago, but it's stabilizing.and for around 20 times operating cash flow, I think it's really compelling. It looks expensivebecause they've booked some losses on the gap side based on some changes in their business,but on a cash flow basis, the business is very, very appropriately valued. You could maybeeven say cheap based on the trends around the turnaround. I like that. I don't want to completelypoo your idea, though, Jason, but I do have to say, come on. I have to say I now
19:24buy my coffee when I treat myself. I buy my coffee from my local convenience store. I go toWawa to buy my coffee. I don't go to Starbucks anymore. So I'm part of the problem that Starbucksneeds to fix. I have money and a gift card on my app that I have not spent. So Starbucks needsto 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 perceptionthat their average entree costs $5 more than it actually cost.These businesses have to fix those perceptions as much as the actual problems inside their doors.Certainly.
20:01I do think they can do it, though.Send meat, 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 wing stop, ticker W-I-N-G.While it's not traditionally a fast, casual restaurant, it is primarily a pickup and deliverybusiness solely focus on wings, chicken wings, chicken,sandwiches now they have. And it's just a fantastic operator. That's the thing that gets mewith them. They operate small stores with minimal staff, very simple menu with fantastic
20:36sauces, I think. And an easy ordering menu and a food that's translatable across theworld that is often consumed with sporting events and special celebrations, mostly sporting events,which are throughout the year now.So, and their growth trajectory to me seems a lot faster, higher than a, even thoughChipotle, which I still love, Wingstop has a lot of white space in the United States,internationally, and with maybe even expanding some of their foods, which they do, their menu,which they do at a moderate pace.So I really like Wingstop.
21:20I 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 and they did in 2025.SendMeet 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 in the Motley Fool
21:42may have formal recommendations for or against.So don't buy ourselves 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 Sandmeet, Beo, Jason Hall, and the entire Motley Full Money team, I'm Emily Flippin.We'll see you tomorrow.
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