What's happening in the quick service food and drink business is almost unfair. Three companies, just three companies -- Starbucks (SBUX) , Chipotle Mexican Grill (CMG) and Domino's Pizza (DPZ) -- have come through this pandemic stronger than they were before it and their stocks, which are relentlessly hitting all-time highs, are telling the truth about what happened.
We hear a lot of Wall Street gibberish when we listen to stories about how companies are doing. You get the rap about a terrific go-to market plan. You know when you hear the term TAM -- total addressable market -- that you are going to get some tall tale about how everyone might want or need the product.
But there's just one term that rings true, and that's the term "at scale," and when it comes to the quick serve business, "at scale" is everything.
Thursday, I had Ritch Allison, the CEO of Domino's, a company that has delivered a ridiculous 8,000% return over the last 17 years when the S&Ps give you below 500%, and it was a tour de force of at scale. Because Domino's is huge and its model was takeout or delivery to begin with, it was set up well for the pandemic. But what we didn't realize is that it kept its customers and then added some during the height of COVID and then kept those, with same-store sales up 3% in this country when you would expect them to be down given that many people who may have stayed home and ordered pizza can now go out to their old favorite restaurants. However, many of those restaurants have been blown out while Domino's has simply honed its quick delivery business, pioneering touchless drop-off, a website second to none in terms of ordering and even the use of driverless cars to get that pizza to you in time.
It's a remarkable feat and all the technology has been developed in-house because the company makes so much money.
Have you seen the unstoppable stock of Starbucks? I know we caught a double for a lot of our position for Action Alerts PLUS and I thought I was being a pig: bulls make money, bears make money, but hogs get slaughtered.
I was wrong. You know why? Because Starbucks has figured out how to get you in and out with a best-in-class app and a loyalty program that really rewards you. It has been killing it in delivery and it has invented so many new drinks that you are getting boutique at scale. Meanwhile, in order to deal with lines, Starbucks has sopped up empty stores and put in stand-alones that just get you in and out incredibly quickly without a place to hang out, something that wasn't wanted in the pandemic and isn't needed now. The fact that it is run by a technologist, Kevin Johnson, late of Juniper, was simply a brilliant hand-off by founder Howard Schultz.
Finally, Chipotle. What can is say about Chipotle? It took its firepower and its balance sheet, which you get at scale, and negotiated with malls for Chipotles with Chipotlanes that have allowed stores to make as much outside as inside. What a remarkable feat. Stunning. It's how they intend to get from a staggering $2.5 million a year per unit to $3 million. Like Domino's and Starbucks it is Chipotle's own technology. Your local burrito shop just can't negotiate low fees with the delivery outfits and create technology that gets you in and out with the speed of Chipotle.
I know these stocks are now lofty. Domino's caught a downgrade here on Friday from J.P. Morgan because the stock had run too far. I say that's what I thought about Starbucks when it hit $113. It's now at $124. Now that's at scale writ large.