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5 Restaurant Stocks That Could Win Big Thanks to Technology

The restaurant tech revolution is here — and these companies are at the forefront of the movement

Source: Shutterstock

Let’s face it. Everything is about technology these days. Want to watch a movie? Turn on your smart TV, open Netflix (NASDAQ:NFLX), and pick a show. Want to figure out how to make a sandwich? Take out your smartphone, open Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube, and watch a short instructional video. Want to listen to a song? Tell Amazon’s (NASDAQ:AMZN) Alexa to play music.

We live in a technology dominated world, where technology influences everything we do, and where we use technology to do everything. This isn’t a bad thing. On the contrary, it’s a good thing. Across the board, technology is making things cheaper, more convenient and overall better than ever before.

The restaurant sector is no exception. Across the entire restaurant category, companies are increasingly adopting technology to improve their operations. This includes implementing things like digital drive-thru menus, digital ordering kiosks and mobile food-ordering apps. It includes leveraging data to make better menu decisions and partnering with third-party tech companies to improve the customer experience.

Broadly, restaurant operators everywhere are taking technology and using it to drive higher sales with lower expenses, thereby producing much bigger profits. The investment implication? Buy restaurant stocks that are doing this the best.

With that in mind, let’s take a look at five restaurant stocks which are leveraging technology the right way. These stocks all could rally in a big way over the next several years as their big technology investments yield even bigger rewards.

Restaurant Stocks to Buy: McDonald’s (MCD)

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Global fast-casual restaurant giant McDonald’s (NYSE:MCD) has kept its lead in the quick-service restaurant category because the company is at the forefront of the restaurant sector’s technology transformation.

Across the board, McDonald’s is investing big in technology to improve every facet of its operations. The company is refreshing stores and implementing digital ordering kiosks and drive-thru menus everywhere. It is more intimately tracking customer patterns and leveraging that data to run more relevant and successful promotions, as well as make smarter and more meaningful menu changes. It acquired Apprente, a sound-to-meaning voice assistant, and plans on implementing artificial intelligence voice ordering capability into drive-thrus soon. McDonald’s has a mobile app and has partnered with big third-party delivery companies to increase delivery reach.

In sum, all of these critical technology transformations have kept McDonald’s comparable sales growth in solidly positive territory. They’ve also preserved a healthy margin profile and helped power healthy profit growth.

McDonald’s has maintained its lead in the global quick-service restaurant word because it is leading the charge on the technology transformation front. So long as it continues to do so, sales and profit trends will remain healthy, and MCD stock will grind higher.

Jack in the Box (JACK)

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One of the more underrated fast-casual restaurant operators that is at the forefront of the restaurant technology revolution is Jack in the Box (NASDAQ:JACK).

Jack in the Box is more known for its burgers and curly fries — not its technology. But, the company has quietly become a leader in restaurant tech. It all started with huge drive-thru investments back in 2018, since Jack in the Box saw a sizable opportunity there as 70% of sales come from the drive-thru. Jack in the Box implemented a whole bunch of technology changes, including building digital menu ordering boards. The company followed that up with its first-ever customer mobile app in 2019. Through it all, the company has been leveraging data to run more effective value bundles, promotions and advertisements.

These efforts are paying off. In a big way. Last quarter, Jack in the Box reported 2.7% comparable sales growth — the biggest comparable sales increase Jack in the Box has reported in two years, by a mile. Further, management said on the call that growth momentum is accelerating from this two-year high mark.

In other words, Jack in the Box is in the early innings of reaping the rewards of what has been a major tech investment period over the past two years. The company will continue to reap these rewards over the next few quarters and years. As it does, JACK stock should continue to trend higher.

Dunkin’ Brands (DNKN)

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When it comes to technology integration in the coffee retail world, Starbucks (NASDAQ:SBUX) seems to get all the love from Wall Street. But, Dunkin’ Brands (NASDAQ:DNKN) has experienced just as much success from its technology integrations. Plus, the lack of love from Wall Street here creates a compelling investment opportunity.

The big tech innovation at Dunkin’ Brands has been the company’s On-the-Go mobile ordering app. The numbers speak for themselves here. Last quarter, On-the-Go ordering saw average weekly sales increase by more than 30%. As a percentage of total transactions, On-the-Go ordering accounts for 4% of transactions. At locations without a drive-thru, it accounted for 7% of total transactions. In many urban areas, it accounted for upwards of 25% of total transactions during peak hours.

What’s the takeaway? Dunkin’ has found a way to increase sales volume at busy, resource-constrained stores during busy times by allowing customers to order ahead of time through an app, and simply pick up their order right when they get to the store. It’s genius. It increases sales conversions, boosts order volumes, cuts down on wait times, reduces traffic problems and presumably provides a lift for margins since this increased sales volume comes without a rise in expenses.

Sure, Starbucks has done something similar with similarly positive results. But, SBUX stock trades at 29 times forward earnings. DNKN stock trades at 24 times forward earnings. Historically speaking, these two stocks normally trade at roughly the same valuation. Thus, today’s big relative discount in DNKN stock — despite Dunkin’s great success on the tech front — presents a compelling buying opportunity in DNKN stock.

Domino’s Pizza (DPZ)

Source: Ken Wolter / Shutterstock.com

Oddly enough, pizza eatery Domino’s Pizza (NYSE:DPZ) — which many see as being in competition with the proliferation of delivery tech in the restaurant world — is actually a company that is winning big from restaurant tech innovation.

The story here is that earlier this decade, the at-home economy shift provided a huge tailwind for Domino’s since, while consumers were binge-watching “Stranger Things,” they got hungry, and when they got hungry, the best (and often only) food delivery option was Domino’s. Things have changed over the past few years. Delivery tech platforms have become common everywhere, and as we binge watch the third season of “Stranger Things” in 2019, we can now order from McDonald’s just as easily as we can order from Domino’s.

This leveling of the delivery playing field is a headwind for Domino’s. But, everywhere else, Domino’s is still leveraging technology to stay ahead of the competition. This includes leveraging its treasure trove of delivery-specific data to have better and more efficient delivery logistics than everyone else, using e-bikes to deliver pizza, developing its own mobile ordering app, launching GPS delivery-tracking technology and creating public hub delivery locations called Hotspots.

Domino’s remains ahead of the curve on the restaurant tech innovation front. So long as it does, the numbers here will remain largely positive, defined by healthy top- and bottom-line growth. So long as that growth trajectory persists, DPZ stock should move higher.

Luckin Coffee (LK)

Source: Keitma / Shutterstock.com

For the last stock on this list of restaurant stocks to buy thanks to the restaurant tech revolution, we have to go across the pond to China, where hyper-growth coffee retail chain Luckin Coffee (NASDAQ:LK) is using technology as its best friend to become the dominant coffee chain in urban China.

The Luckin Coffee value prop is simple — don’t wait, ever. Imagine the Dunkin’ On-the-Go mobile ordering experience, and make it the entire business. That’s exactly what Luckin Coffee is. It doesn’t just have an “order on your phone ahead of time, pick up in store” option — that is the entire process. Around 90% of Luckin’s stores are pick-up stores, with limited seating availability. The entire process is: 1) order on your phone, and 2) pick up your drink in the store.

As such, Luckin is a technology-first coffee retail chain that leverages a mobile-focused ordering process to increase customer convenience and reduce overhead expenses. That’s a winning process. Ultimately, it means Luckin should be able to deliver coffee drinks faster than anyone else in this space, and at lower prices, too.

Lower prices and higher convenience always win out. As such, Luckin Coffee projects as a big growth company in China’s secular growth coffee retail market for the next several years. During those big growth years, LK stock should trend higher.

As of this writing, Luke Lango was long NFLX, MCD, JACK, DPZ and LK. 


Article printed from InvestorPlace Media, https://investorplace.com/2019/09/5-restaurant-stocks-that-could-win-big-thanks-to-technology/.

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