Can Toast Thrive in the Restaurant Renaissance?

In this podcast, Motley Fool analysts Tim Beyers and Rick Munarriz discuss:

• Surprisingly good data from the Restaurant Performance Index.
• The metrics that matter when investing in the restaurant sector.
• The future of Toast -- the company, not the food.

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A full transcript is below.

Should you invest $1,000 in Toast right now?

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This podcast was recorded on July 14, 2025.

Tim Beyers: Are restaurants rising? You're listening to Motley Fool Money. I'm Tim Beyers, senior analyst at Motley Fool Rule Breakers, with me, one of my teammates here, Rick Munarriz,, Rick, we need to talk restaurants because you are the original TMF edible. I know that you haven't carried that name for years, but if I want to talk restaurants, I want to talk to you, and we need to talk restaurants today, Rick, and I'm going to hit you with a lead line that I really want you to dig into. The Restaurant Performance Index, which is something that tracks overall business at restaurants. It was up 0.4% in May. But this is interesting, Rick. It's the third consecutive month of increases. What do you make of this? We've had weird economic numbers, and yet restaurants are on the rise.

Rick Munarriz,: Yeah, again, it's that unexpected and refreshingly surprising because the year started off pretty rough. Sweetgreen posted their first quarter as a public company with negative caps. We've had companies like Starbucks have had five consecutive quarters of negative comps, Applebee's iHOP, Papa John's Pizza, KFC, all these chains have had at least a year of quarterly negative comps. It's been a rough time for restaurants, and then you see this, and it's not just that it was three quarters of positive restaurant performance index, is that it actually clocked in over 100 for the index which basically signifies expansion, which is actually what you want, not just to bounce but expansion, again, it's a matter of will it stick, and that's the biggest thing because even in the whole story that National Restaurant Association put out discussing it, even the restaurant owners said, Hey, only a third of them are optimistic that six months from now, it's going to be this strong. But again, they're the ones that got it wrong in the first place, thinking, this would be a prolonged downturn. The consumers have the final say, and they're hungry and they're coming back.

Tim Beyers: They're eating and they're eating more. Ticker Trends has some data on this, and we are going to talk about Toast a little bit later. We're going to have a dueling fools on this. Please stay tuned. We've got a chock-full episode for you. But let's talk about the Ticker Trends data here, Rick. The increases in daily average users of Toast Mobile app was up significantly. Engagement should lead to additional business, of course, and point of sale web traffic was in the range of up 20% year over year. Here's the question I have for you. Should we consider Toast to Bellwether for restaurants? Because we are going to be debating that. What do you think?

Rick Munarriz,: I think Toast tends to overstate the restaurant industry because they're growing so quickly in the number of restaurants, whereas restaurant investors need to focus on the actual growth of their own investments. Toast, to me, is best in class for what they do, and that is the point of sale system, and yeah, obviously, they're doing well, and the industry's do better than most people figured, because this is an industry where you had it stuck with, they're not it's insulated from the whole tariff war thing because the supply chains are pretty well protected, but will the consumer be back? Will they be hit? While that still remains to be seen, they're coming back now. But yeah, Toast to me, is a quality company, obviously, and we'll get to the bull and the bear argument on that soon. But I do think that you can't assume because Toast is doing well, everybody's doing well, because that's not always the case.

Tim Beyers: But we've got some breakers in the making, don't we? One of the things that does seem to be happening is there's more restaurant innovations, and we've got three of them here to talk about briefly, but I'm curious if there's any that stand out to you. The three that you hit me with were the Chipotlanes. Chipotle seems to really be profiting from that. Wingstop has certainly done a ton of work to increase mount of digital ordering. You don't even need to go in the restaurant. Just open the app, get your wings, which is fascinating, and then Sweetgreen with its infinite kitchens, are you expecting more restaurant innovation here, Rick? Who is the breaker in the making that really stands out to?

Rick Munarriz,: I think all three are doing great things. Even though all three had a slow first quarter of this year, the first three months of this year, they all have the right ingredients to make that recipe. I'm going to stop with the restaurant [inaudible] and just go. Sweetgreen is one I'm really excited about because this whole infinite kitchen thing, when I first saw about it, you basically, like a robot making your salads. I'm like, well, no, this isn't the Jetsons. This isn't going to work. It is more efficient than humans. It obviously can crank out more salads, and if you Sweetgreen and it's lunch hour and you have a lot of corporate orders that come in, that's a big part of their business that they deliver to office buildings with a lot of different complex orders and accuracy, which for a company like Sweetgreen that charges a premium, if you have to throw that stuff away, it's a big deal. That's an important step up, and obviously, your local salad bar can't make that investment. Sweetgreen can because it's scalable.

Tim Beyers: Let's talk about learning the lingo here, Rick. If you've never invested in a restaurant company before and there are lots of public restaurant companies, what are some things that these investors really need to know? What are the metrics that matter most here? I'm going to hit you with a few of them, but talk to me first about comps. Comps is the one that confused me most when I first started looking at restaurants. But talk to me, Rick. What are the metrics we got to pay attention to?

Rick Munarriz,: Comps, in theory, by definition, it's one of the easiest metrics, but I get you where you can get thrown off. It's comparable restaurant sales. It's how the restaurants are around for at least a year, and some chains have 18 months just because sometimes a restaurant will open and it will have this initial spike, but they want to normalize. At least 12-18 months after it's been open, if it's been opened in both periods, they can count it in their comps, and they add up all the sales divided by the sales a year before, and the growth or the decline is comps. It's basically the average unit average restaurant is selling more or less than before. But yeah, as you mentioned, comps is itself the number of sales, but a lot of things factor into that. There's foot traffic, is traffic up, or is it that menu pricing is up, or is it a menu shift where people are actually ordering stuff that are higher priced in the menu. There's three factors that go into determining the comps, and that's traffic, the actual menu increases, which happen over time. That's inflation and also the menu shift, which is can you get people to stick around for dessert? Can you get them to pay for the more premium priced offerings and stuff like? It all goes into the comps, and it's a very important metric for the industry. It's a good sign of health. It's easy to confuse with some other industries but for restaurants, it's a very strong indicator of health.

Tim Beyers: I have to say Chipotle definitely increased my spending when they said, Hey, we're going to start having Cheriso and I said, I'm going to start having more burritos then.[laughs]

Rick Munarriz,: You mentioned Chipotle with them, too, because even year over year, like, last year, they had a chicken al pastor, they added. They realized, hey, we don't have to have one chicken option. Let's give people different poultry options. Chicken al pastor did OK. But now this season, they came out with hot honey Chipotle chicken, hot chicken, sorry, Chipotle chicken, and that's taken off. In this current quarter, should be better, a nice recovery for Chipotle than the first quarter of this year.

Tim Beyers: You can do it in a lot of different ways. But let's talk about locations. How do we think about locations and growth when we're talking about restaurants? The reason I bring this up is when you wrote out the original Chipotle recommendation, the argument was, Hey, this is still a fairly small footprint for a really popular restaurant, and we could see dramatic expansion in locations. How do we think about this? When we're talking about valuing a restaurant or a restaurant group and locations factor into it, how should we think about?

Rick Munarriz,: The more successful chains, they start with the target, and that was almost 15, 20 years ago.

Tim Beyers: It was a long time ago.

Rick Munarriz,: It was a long time ago, and at the time, I think there were maybe 500 Chipotle locations out there at the time, and maybe I think the target at the time was maybe 3,000, 4,000. Now, we're past that, and we're talking about 10,000 plus. That's the whole beauty. When you have a successful restaurant, the ceiling is a movable ceiling.

Tim Beyers: Literally a movable feast.

Rick Munarriz,: Yes, a movable feast. Thank you for filling in with my pun drought right there. But yeah, so you do have that happening there. Obviously, expanding helps companies on many scale and everything. One of the more interesting things this past in the first quarter this year, the first three months, we're going to find out how the second quarter turned out soon enough was Chipo I'm sorry, Chili's, which is the Brinker International Chili's, a company no one expected to quadruple since the start of last year and not really in our Rule Breaker universe. But they've done it. They've had back to back quarters of 31% growth in comps, and the key to it is not expansion because their sales are actually revenues up 27% in its latest quarter. It's actually been the strong comps at the Chili's, not the Maggiados, which has been smaller and struggling. That's going well for them. You compare that to Cava, which had 28% revenue growth. A stronger top line growth than Brinker. But they had just 10.8% comps growth, and I say just facetiously because 10.8% was pretty good, and for them, it was 7.5% traffic, and the rest was just people paying more once they got into the Cava. Definitely sorry, restaurant growth was 18% of that 28%, 18% growth, so the lion's share of that model.

Tim Beyers: When we're looking at restaurants, there's, these two tiers. One of the growth levers is, can you affordably open a lot more locations and grow your footprint. The other is, can you do things and innovate with the menu and get your patrons to pay a little more, maybe raise prices here and there, introduce new things into the menu that allow people to open up their wallet a little bit. You have these two vectors of growth. Well, it's such a fascinating sector, and we are going to talk about one of the companies that serves this sector quite well. Up next, Rick and I are going to do a dueling Fools on my favorite stock, Toast.

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Tim Beyers: Rick, we're back, and we're going to talk about toast. This is our dueling Fools segment. You're going to make the bull argument. I'm going to make the bear argument, and then we want to hear from you. In the comments to this show, please tell us, Are you more bullish? Are you more bearish? Who was more convincing? We want to hear from you, so get your comments in. But Rick, you're up. Let's hear the bull argument on Toast.

Rick Munarriz,: It's perfect for a company called Toast to get this bull bear treatment. The word itself has extreme meanings when you're good, they toast you when you're bad tour toast. This toast is good. You probably remember the first time you came across a toast reader when it was time to settle your bill at a restaurant. You're probably intrigued by the novelty of the process. The second time you did it, you may have gotten maybe rebelliously sentimental. You missed the sound of leather bill folders flapping, sliding your credit card over discreetly like you're playing a clue board game, only to wait a bit more before you're working the gratuity math in your head as your waiter or waitress wants your autograph, like the celebrity that you are. By the third time, and every time after that, since you surely stopped counting, the revolution clicked.

You hopefully appreciate Toast as a win win proposition. You win as a patron because you can pay your bill quickly if you have somewhere else to be. The wait staff wins because they rely largely on tips, and Toast helps turn tables faster, and restaurant operators are even bigger winners because Toast isn't just about the convenience of handheld devices to get the kitchen working on your order sooner or the portable contactless payment solutions to cash you out quicker. That's just the tip of the iceberg lettuce. Behind the scenes, Toast is a one stop shop for a restaurant looking for standout in this cut throat industry. Toast can help with inventory management, payroll processing, the managing of direct or third party delivery app online orders, and even email marketing. Toast works, and the proof is in the sticky taffy pudding. Toast was serving 85,000 restaurant locations two summers ago when it was initially recommended in our Rule Breakers. Today, Toast is helping 140,000 establishments. There are options out there. Toast wouldn't be growing if it wasn't giving its client a leg of lamb up on the competition, and in the COVID Smack year of 2020, when everyone was learning about sourdough starters and home real replacement kits, your favorite local eatery took a hit to the gut. The Nation's National Restaurant Association, the NRI for Industry Food reported that total US sales were $659 billion in 2020, down 24% from the previous year. How did Toast do that year? Revenues rose 24%, and Toast it's obviously going to be at its best when restaurant operators overall are thriving.

Toast revenue would go on to more than double in 2021. But however, its ability to gain market share while also making its clients more productive and successful is a recipe for success. Toast has topped 24% of revenue growth in every quarter since going public four years ago. Its gross operating net and free cash flow margin has improved every year. Once a haven for Indie operators, Toast recently stuck struck its biggest deal for the parent company of Applebee's and IHOP. It had a top golf just before that. Running a restaurant isn't easy, and it's getting even more complicated to succeed. The five year survival rate of a new eatery is problematic. The industry is the tadpole or the sea turtle hatchling of the start-up space. Toast is a cheat code. It's a one stop shop that lets any operator hit the ground running. As an investor, you want to invest in successful and legal, I should add, cheat code providers. This one has that Genesequir Pardon my French, Tim, Toast.

Tim Beyers: Nice. I like it. Let's talk about the bear argument. That's a very good bull argument, Rick. But Toast is an outstanding business, and I have been buying more of it. I'm not going to lie here. But it's always important to know the bear argument, and I'm not going to pretend that this stock is without risk, and there's a few risks here. Let's hit them. Toast doesn't have pricing power. Not really, anyway. Annual revenue per location has remained at or about $40,000 annualized since I started following the stock almost three years ago. If you're going to do any evaluation work, better not be cooking in additional pricing power because that's just not how Toast works. Now, that is a risk. It doesn't mean that Toast can't profit, but it does mean if you are relying on Toast making more money per location, history says you're wrong. The input costs can go much higher as well, Rick. We know this. The restaurant business is fickle, it's subject to the matro, and what's good for Toast customers is good for Toast, and conversely, when there are things that are bad, if things are bad for customers, it can be bad for Toast.

They have a significant part of their business called the Fintech business, which is taking a small portion of all of the business that is generated through each restaurant location, and if that business starts to wane, Toast is going to feel it. Tariffs and tariff induce uncertainty can drive up input costs, and the ingredients chefs depend on, inflation is a real thing here. Think imports of Brazilian soybeans and coffee, for example. Nobody wants higher prices on those things, and yet higher prices may be coming. Third, locations can get even more expensive. Look, an inflationary environment isn't likely to be good for consumer spending or for the cost of construction loans to build out new locations, and new locations is the key value driver in the Toast model. We need to see Toast multiply the number of locations using its wares in order to realize the generous returns we see. It has to be about roughly 8-9% annualized. Now, I think that is more than doable. Toast has been doing that, but it could get bumpy here, and let's not pretend that it won't get bumpy, and then finally, the valuation is OK, but it's hardly perfect here. At a free cash flow yield of 0.68% as of this writing, Toast is priced for years of higher than average growth and significant expansion in its operating and free cash flow margins. Again, I think you can achieve them but it's a higher hurdle than I'd normally like. Thankfully, I do believe these things are achievable. Just the hurdle rate is something to pay attention to. Let us know what you think. We want to hear whether you are more bullish about Toast or bearish about Toast. Up next, a little bit of trivia to teach you about the restaurant space.

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Tim Beyers: Rick, we're back. I want everybody guessing on this one, and Rick doesn't know the answer. This is live. We're doing it live. Rick, I want you to tell me, and I'm going to give you a hint as to what the answer is. What is the world's busiest restaurant? You asked me to define what I meant by that. What I mean is average revenue per location. It's roughly unit volume or unit revenue. On that basis, what is the world's busiest restaurant?

Rick Munarriz,: In 1997, I knew the answer then. Back then, there was a Planet Hollywood, the one at Disney World, which is generating $50 million a year. Obviously, the hard rock chain wasn't, and every fall in a place. I know it's not going to be a McDonald's or a Subway because I know they do about 3 or 4 million a year, and it's just low prices. They're getting a lot of cars to go through, but you're not generating revenue. I haven't checked on cheesecake factory in a while, but I know it used to be about 8,10 million per unit. But I get to feeling this may be some international company I've never heard of, Tim, and you're just going to pull the rug under me. But I can't think of one right now that would be higher.

Tim Beyers: Let me give you one other hint. Let's center on QuickServe restaurants. That would eliminate cheesecake factory. But it's factor in QuickServe.

Rick Munarriz,: I think Chic-fil-A actually outpaces McDonald's. Oh, you're pointing at me. Yes. I got Chick-fil-A. It's not even public. That's not fair. It's not fair. You went for a non public company.

Tim Beyers: But it is useful because I'll tell you, a company that is climbing toward those Chick filet numbers, there are two of them, and two right on the Rule Breakers scorecard. We know them well, Rick, Chipotle and Cava. They are climbing toward those Chick filet numbers. Chick filet when measured by average sales per restaurant is about eight point you were almost dead on here, 8.46 million in 2023. That's the latest numbers that we've got.

Rick Munarriz,: That's just six days a week.

Tim Beyers: That's six days a week. It's absolutely incredible. A great resource. If you are going to invest in this sector, I want to recommend QSR magazine and the QSR 50. That's where I got this data from. QSR magazine, the QSR 50, which is the annual ranking of unit level performance of the Best Quick Serve restaurant operators, and most of them are public. Rick, last thoughts on restaurant investing, I'm going to say you're going to continue to be a rule breaking restaurant investor. If you had one bit of advice for somebody who wants to invest in the restaurant sector, what is it?

Rick Munarriz,: Stay hungry and, again, look for the innovators and look for the stuff that you like because there's a good chance that, trust your gut, I think is probably the best way to get through it. Look for companies with a lot of growth. The Chipotle, when we first got it on the Rulebreakers scorecard, I had never been to Chipotle. I was just going by their numbers and their comps and their expansion, and it just made sense to me before they came down to Florida. Look for a company with a high ceiling, as we already talked earlier. But yeah, get in when the company's still expanding quickly.

Tim Beyers: Don't be afraid to address your hunger. The eating is good. Fools, as always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear all personal finance content. Follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content provided for informational purposes only. See our full advertising disclosure, please check out our show notes. Rick, thanks for being here for our engineer, Dan Boyd, and Tim Beyers. See you again tomorrow, Fools. Fool on everyone.

Rick Munarriz has positions in Sweetgreen and Toast. Tim Beyers has positions in Chipotle Mexican Grill and Toast. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Starbucks, and Toast. The Motley Fool recommends Cava Group, Sweetgreen, and Wingstop and recommends the following options: short June 2025 $55 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.