ZOES anyone?

Does anyone have anything good or bad to say about Zoes Kitchen (Mediterranean healthy fast food)?


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Wozzat then? Sounds like Olive Garden to go. I haven’t come across them in Singapore but then as a European I can’t say that an American fast food joint is necessarily the first place I would go to sample authentic healthy Mediterranean cuisine!

I thought you didn’t like the restaurant stocks. So what’s up here?

Hi Saul

I bought a starter position. Very small at the moment. I have tried their menu at different places across the South while on business travel.

Because I travel for work regularly I am really careful where I eat and what I eat (because I am health conscious and I want to have an excuse to sample the local beer!). The quality of the ingredients is super fresh, the taste is amazingly consistent and quite authentic, very sanitary, i enjoy the set up of their restaurants, the service is swift, and they usually have a place to sit outside. It also attracts a more mature crowd which to me is nice if i need to do some work on the road. That mature crowd also typically has more disposable income and judging from the numbers patrons are spending and increasing their spend. I have never been exposed to their catering business but that seems to be growing really fast, and they locate their restaurants not just near higher concentrations of consumers, but ideally also near high concentration of businesses.

Now, will it be a CMG? I do not know. I think they, even more so then BWLD which i own as well, have the best shot at reaching that $15b market cap CMG is at today, continuously chipping away at the last generation of fast food restaurants as society changes its eating habits and intelligence. What i do see though that for this cuisine/theme, they are taking the lead.

I am unlikely to add to my small starter position until they turn a profit. That is what I am keeping my eyes on. I think the market is waiting for that too. It has been trading sideways for a year now between $27 and $37. I am in just under $30. Their Cash/Debt position is also not the strongest, but Quarter on Quarter revenue growth stands at about 40% at the moment. SGA is increasing rapidly too, but you would expect that from a growth business and a business who is buying franchises back. So when i look at the annual cash flow statements I am very encouraged. Cash flow from operations (i am just taking annual right now for illustration) between end 2013 and end 2014 grew by ~70%, the previous year was about 40%. It is just that they are pumping all that money back into the business, and then some through.

One of the lessons i took from you: “there are plenty of investment opportunities in business that make money, not bleed it, regardless of what the explanation is.” I still have a few of those in my portfolio, but they are in the vast minority. ZOES looks like they are doing what they should be doing, but I am careful.

The exchanges on this board especially the last months have been immensely educational. I am still relatively new to investing (3 years)and my first exposure was TMF RB and SA later on. You and this board have provided a great counterbalance to the TMF philosophy and it has helped me to shape my own investment style.

Very best


Thanks Bashaar, that was very helpful. I appreciate the time and thoughtfulness you put into your response.

You asked about Zoe’s Kitchen, and I don’t know anything about this company, but I’ll give you my impression of the restaurant business in general. I hope you find something of benefit in it.

I’ll preface with the comment that I had a smallish CMG position which I recently sold at a significant gain. I am also long SBUX with a pretty hefty 7.5% position - but I don’t really consider SBUX a restaurant.

Generally, I don’t like the entire segment. IMO there is so much potential for things to go wrong that it makes it very difficult to find an investment worth the risk.

First, the menu is subject to the constantly shifting taste (pun intended) of a fickle public. And since CMG pretty much single-handedly made quality of ingredients a major issue, it’s not just the dishes on the table, but the entire supply chain that is subject to public scrutiny.

Then, you have the kitchen. Remember about 20 years ago when Jack-in-the-Box killed a few customers with some under cooked, e coli burgers? The screw-up by one under-paid, poorly trained kid in one store had a huge negative impact for the entire chain of over 1,000 stores. They survived, but it was not a good event for investors - in fact it was just not a good event period.

Then there’s the staff. The restaurant business depends on treating it’s staff like crap - there are some exceptions, CMG and SBUX being a couple. Maybe Zoe’s Kitchen is another, but the general rule is workers are poorly paid, provided minimal benefits, and have to live with absurdities like split-shifts and other scheduling miseries.

Finally, you have line-level management. Supervising people is really difficult. And because all lower level positions are poorly paid, there tends to be an preponderance of really bad managers at the store level. The level at which the public facing staff resides. I won’t go into details, as a former psychiatrist (do I remember that correctly?) I’m sure you know all about how a little poorly vested authority can be abused. And for the most part store level management in the restaurant business demonstrates a lot of abuse.

And there are probably a dozen more other factors that might easily go wrong. Dirty bathrooms, patrons toting assault weapons, screaming children, etc., etc., etc.

With so many good investment opportunities out there, I find it really hard to find a compelling investment story in the restaurant business.


Hi Saul,

Perhaps this is not explicitly a comment on Zoes Kitchen, but I’ll try to make a few simple observations that you may find helpful to some extent.

First, I am a Chipotle shareholder and have been since (almost) the beginning. As such, I’ve tried to understand what best makes a successful restaurant. Here is my gut list:

  1. Something that already exists, is successful, but hasn’t been done well enough to make a lot of money in the past. For example, I love Mission Burrito in Houston. But they do not and cannot scale (see point #2).

  2. Ability to scale. Open a lot of restaurants and move a lot of people through them in as little time as possible. Back to Mission Burrito (or Freebird’s), the lines are typically long and slow, there are too many options requiring too much time to make a decision. Nine times out of ten, I’ll simply ask for the barbacoa in a bowl with extra meat, guacamole and virtually everything else on the line, except sour cream, because I’m counting calories ;). It takes me less than 5 seconds to tell the server what I want. However, I did try the the tacos (with barbacoa) when I was in Vegas a few weeks ago and thought they were great (corn tortillas are not easy to come by in Germany).

  3. Offer a simple message. For Chipotle, it’s Food with Integrity. This is fantastic! And they follow through on it. The food tastes good and is responsibly brought through their system all the way through to the customer. Years ago, I would travel to Houston twice a year on business and would make Chipotle my first stop prior to heading to my hotel.

  4. Optionality. Chipotle has been really successful since the beginning. But there are a lot of things in the past that they started to do that most didn’t even fathom. They now do Asian & Pizza, catering, online ordering, hold events at their restaurants and could some day offer breakfast, beverages other than alcohol or whatever. I’ll bet that they figure out a way to move twice the people through the line in the same amount of time without sacrificing quality. (I am almost done reading Antifragile and am thinking a lot about things with huge (limited) upside (downside).

There are a lot more things I can enumerate, but don’t want to write a novel.

So back to Zoes Kitchen. Real mediterranean food is fabulous. However, we Americans have lost the ability to produce really good food, especially mediterranean food. Instead, we put too much stuff on everything, too many different ingredients, too much fat (American pizza is okay once in a while - But we should not call it Italian food), too much, too much, too much!!! Mediterranean food is ready for disruption.

If Zoes Kitchen can do really good mediterranean food simply and faster than the others while keeping quality high, I’m interested in it as an investment, and I don’t really care if it’s expensive now. The runway could be gigantic (Italian, Spanish, Greek, French…).

It is my intention to seek out a Zoes Kitchen the next time I’m in the States so that I can assess this myself. Unfortunately, it may be a while.

On a side note, Shake Shack is a place I visited twice while in Vegas, and I love it (even more than I love Five Guys). I’m just not convinced that there are a lot of options, the runway could be relatively short, and I cannot figure out how they can run a lot more people through the line without compromising product quality.

Now, if I can bring myself to run the simple numbers like Saul would run them, I may be even more interested.



I posted some observations from my visit to Zoe’s a couple of weeks ago on the RB board:

We both agreed that we’d be back again when we are in the area. If we had a Zoes in our small town, it would definitely be on our frequent dinner list.

Can they make me money? I’m not sure yet, but I did buy a starter position a couple of weeks ago. I’m impressed with the quality and the fare.


I hope you’ll share your thoughts about the business side of the coin

I know that I kept seeing Zoe’s on the credit card bill and didn’t know what it was. Turns out my wife goes there a lot for lunch. I think she feels it isn’t something I would eat a lot of but she goes there with her friends all the time. She has brought home take out for dinner and it is very good. It is things like salads and pitas and hummus but everything we ate was pretty good and perfect for take out.

So this would fit the Peter Lynch model for starting to look in my house! I looked at numbers a while ago and felt it was very expensive. Probably should do so again

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With so many good investment opportunities out there, I find it really hard to find a compelling investment story in the restaurant business.

Hi Brittlerock, Could you share why, feeling this way, you invested in Starbucks and CMG which presumably have the same potential problems? thanks


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My investment in Starbucks is in part emotional. I live in the Seattle area (I’ve also held positions in Boeing, Microsoft, Amazon, Icos, Expediters Int’l and other local companies. Starbucks is the only one I still hold). I didn’t get in on the ground floor as it were - in fact I wasn’t even investing, at best I was dabbling at the time, but I kind of had an affinity for Starbucks because I missed coffee houses I used to frequent in the Chicago area. Also, just by coincidence, for a while Howard Schultz and I would bump into each other occasionally because he stopped at the same Starbucks store as I did on his way to work in the morning.

I never really thought of Starbucks as a restaurant. They started out with almost no food items - only a few pastries or something like that. It was all about coffee. It didn’t align with all the things I felt could go wrong with a regular restaurant. And the staff seemed generally really eager to provide good service, so I figured they must be having a different experience than the typical fast service restaurant. I still hold the company because it’s performed well and I still don’t think of it as a restaurant - maybe I should reconsider that in that they carry a pretty extensive menu of food items now. But the brand is now in grocery stores and all over the world. Yum brand is all over the world, but you can’t buy a bucket of chicken at a Kroger. Anyway, maybe that’s a lame excuse, but that’s my reason.

CMG is another story. They were a Supernova recommendation and I didn’t buy, but I watched them go up and up and up (PNRA was also a Supernova recommendation I never bought. There may have been others. TMF does not share my reservations). I sold some CMG puts and let them expire worthless for a very nice gain. I finally caved in and bought some shares. I felt they were somewhat different from the typical restaurant chain. They took quality seriously. They treated their people well. So on and so forth, but I was still kind of uncomfortable because there’s no way to kid yourself into thinking that CMG is anything but a restaurant. I sold it off over time even though it was doing quite well. It had sort of flat-lined over the last year or so and I recently sold off the last of my holdings.

I won’t say I’ll never buy another restaurant, but I don’t like the business for all the reasons I mentioned before. It would have to be a very good story and seriously under-valued. Even then I’d hesitate. If the story is so good, why are they so under-valued?


Saul, how are you looking at the numbers? Because shares seem ridiculously priced to me no matter how I look at it, even assuming incredible growth.


Thanks DJ for your nice analysis of what makes a restaurant chain work.

Saul, how are you looking at the numbers? Because shares seem ridiculously priced to me no matter how I look at it, even assuming incredible growth. Neil

Hi Neil, You are right. I guess I was seduced by the 48% year over year revenue growth (which is rather amazing) and 7% same store comparables, which isn’t bad either. But this is just a put-it-on-the-radar position for me (if I even decide to keep one). That is to say, very small (a quarter the size of my smallest real position, or less).


I went to Zoes for the 1 st time. liked the food, fast service, clean.
I like Panera’s food also and the atmosphere.
I do not like chipotle’s food- is too salty for my taste

At panera i will meet my friend and we will spend 2-3 hrs; no one will disturb us. most of the people are not HS or college crowd. People spend hours there.
I see Zoe to be similar.

The few times i went to chipotle, we got out as fast we could. it is not a sit and relax place.

I feel because of this Zoe, panera is a nice place to eat but not a company to own.If people can sit there for 3 hrs, business cannot do well.
Just my observation

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Last year I invested a little in Noodles b/c I liked the place, but it was not a position I stuck with. I also recently sold CMG due to valuation. Will people develop as strong a taste for Med as they do for Mexican? It is uncertain.

Well for those watching, the price to buy in just got higher with hopes of a bumper Q2.
ZOES looks like it is bucking the general trend in dining…
I did actually take the plunge and bought when it cleared its buy point during the market dip. Thanks for raising this play to the board.