Friday a new IPO got off to a healthy start, with booming investor interest and stock prices doubling almost immediately after shares went on the market.
No, it's not Twitter (which hasn't actually put its shares on sale yet, anyway). Potbelly Corporation set its stock price at $14 ahead of its Friday IPO, and the price quickly shot to nearly $34 Friday morning. Even after cooling off in the afternoon, it still ended nearly 120 percent ahead, at over $30 per share.
What does it have that Twitter doesn't? Potbelly is profitable, for one thing: the company's profits were more than $24 million last year, according to Forbes. (Twitter, meanwhile, revealed in its IPO filing that it lost $79.4 million in 2012.)
Of course, Twitter and a sandwich chain are two very different beasts, connected in this case only because they made news on the same day. The main reason why Potbelly may have a great outlook is that other restaurants in its field have done so well. Fast-casual dining – essentially, restaurants that are a step up from fast food – has shown remarkable growth.
Chipotle's stock price, for example, has grown by nearly 40 percent in the last year alone and by over 750 percent over the last five years. The share price for Noodles & Company, a newer entrant into the market, has grown by almost 19 percent since its IPO this summer. The entire sector is booming, according to market research firm NPD, with 8 percent traffic growth in 2013 at a time when quick-service restaurants, or QSR (industry-speak for "fast food") are showing no growth.
The boom has come as dinersseek out healthier, fresher ingredients than have previously been on offer at fast food restaurants, says one analyst. As a result, places like Burger King and McDonald's have been playing catch-up.
"I see this [growth] continuing, because even within the fast food segment, you're seeing a lot of upgrading, a lot of remodeling so they can compete with this segment, trying to offer higher quality, more premium products," says Bonnie Riggs, restaurant industry analyst at NPD. "That's been going on for a few years."
Of course, being a restaurant has its own unique set of threats to profitability, not least of which is competition. Twitter, for example, may face a somewhat crowded social media field, but it's nothing like the restaurant business. Consider the number of places you consider spreading a news story or life development – Facebook, Twitter, maybe Google Plus. A person might choose one or all three. Now consider the places you and your coworkers consider going for lunch every day: local delis, Chipotle, food trucks, the Chinese restaurant down the street no one else knows about. And on any given day, only one wins out.
"The biggest risk is customers are always looking for something new," says Jeff Davis, president of chain restaurant market research firm Sandelman & Associates. "So consumers may go because they want to try it, they may even like it. But if it isn't convenient, and if it isn't top of mind, it falls off their list.
People's inelastic demand for lunch and the constant fight to create convenient, high-quality, low-cost food mean that the battle in the fast casual market segment is especially cut-throat.
"It's a battle for market share," says Riggs. "Anybody that's growing within the industry is stealing visits from somebody else."