Is Spicy the New Sweet?
When it comes to spicy food, Americans can't seem to get enough. At a time when other eating establishments are struggling to show meaningful gains, fiery-food restaurants such as Chipotle Mexican Grill and Buffalo Wild Wings are blazing up their sales and profits. Sonic is turning up the heat at the perfect time by introducing a lineup of new spicy menu items, hoping to keep the fire burning on its sizzling same-store sales growth.
For its menu expansion, Sonic is pulling no punches. First, it's starting breakfast with a Southwest "Chipotle" Breakfast Burrito. Smart move. It seems any reference to food with the word "Chipotle" these days is a smash hit. Chipotle Mexican Grill reported third-quarter earnings that included sales up 18%, earnings per share up 17.2%, and same-store sales were up 6.2%. No wonder Sonic is going for Chipotle Mexican Grill's jugular.
Next, Sonic is pouring on the cayenne pepper and habanero sauce for lunch. No longer will you have to wait in long lines for a table at Buffalo Wild Wings to feel the burn in your mouth. Last quarter Buffalo Wild Wings saw its same-store sales, EPS, and sales pop 4.8%, 65.4%, and 27.9%, respectively. Any piece of business that Sonic can take from Buffalo Wild Wings would be a warm welcome for its results.
Sonic's earnings results have been more than lukewarm themselves. EPS grew 20% and same-store sales improved by 5.9%, better than Buffalo Wild Wings and on par with Chipotle Mexican Grill. Sonic credited its surging success in part to its past product innovation. It hinted about this menu launch in its past conference call. CEO J. Clifford Hudson stated,
"Continue innovation of our product pipeline, this has been a very nice contribution to our business for a number of quarters now and will be very good news for us going forward."
What's a better way to cool off your burning mouth than a Sonic shake? CFO Stephen C. Vaughan said
"...we've done some testing and some additional research on that and actually believe there is an opportunity to have an upcharge for those premium flavors, and so that is what you'll see more of going forward."
If these new menu items are a success and build on the 5.9% same-store sales momentum, plus upcharges, plus additional new menu items, Sonic could prove to be a home-run investment opportunity.
Not all spice is seeing the same success
The secret to winning customers' spicy taste buds is a bit more complex than just turning up the heat. McDonald's recently introduced its Mighty Wings, yet it reported an underwhelming same-store sales increase of 0.9%. Even that increase had more to do with its reimaging than its wings.
McDonald's confessed in its conference call that the Mighty Wings launch failed to stem off challenges with increasing guest traffic. It performed at the "lower end of our expectations" according to CEO Don Thompson. Spice is nice, but flavor still matters. So far Mighty Wings haven't hit the spot as well as others in the fiery-food business.
Final foolish thoughts
Spice is the new sweet, as long as it accompanies flavor. Look to see if Sonic is successful with its new spicy menu additions by looking at the same-store sales trends and the comments from management in its earnings release and conference call. If Sonic is able to attract the crowd that likes to sweat from its food, it could prove a volcanic winner.
The article Is Spicy the New Sweet? originally appeared on Fool.com.Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings, Chipotle Mexican Grill, and McDonald's. The Motley Fool owns shares of Buffalo Wild Wings, Chipotle Mexican Grill, and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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