Recent stock market volatility apparently isn’t keeping companies from considering initial public offerings.
According to recent reports in Bloomberg, both Cooper’s Hawk and Tropical Smoothie Café are considering IPOs this year.
If they do indeed go public—and maybe they do, maybe they don’t—they would add to what is an interesting lineup of potential IPOs, including Panera Brands, Fogo de Chao and MOD Pizza, that have said or apparently are considering a similar step.
At the same time, they step into a potentially uncertain market. Investors have not exactly laid out the welcome mat for the five restaurant chains that went public in 2021.
One company, Dutch Bros, is up 80%. Another, Portillo’s, is up 35.5%. The other three are all trading below their IPO prices, with Krispy Kreme and Sweetgreen both trading more than 10% below their offering prices while First Watch was 25% in the hole as of market close on Wednesday.
Restaurant stocks as a whole have taken a massive hit since investors began worrying about a combination of the impact from the omicron variant, inflation and outsized valuations. More than half of the publicly traded restaurant stocks are trading at or close to their 52-week lows.
That’s for good reason. Restaurant sales have taken a hit in recent weeks as infections surged again. Rising costs are also eating into margins.
Such situations typically discourage companies from testing out the market. So, too, does volatility—which was on full display Thursday when investors first pumped money into stocks only to start selling roughly everything as the day went on.
Still, it’s worth pointing out that quality companies can go any time. And certainly some of the chains considering public offerings are fascinating.
Let’s start with Cooper’s Hawk, which on Thursday announced a strategy to open alternative concepts under the “by Cooper’s Hawk” name to take advantage of its 540,000-member wine club. While the future of the full-service restaurant market remains uncertain, there is nothing quite like Cooper’s on the public markets.
Cooper’s Hawk unit count and total revenue more than doubled in the four years before the pandemic hit, according to data from Restaurant Business sister company Technomic. Its wine club has also provided the company with a unique combination—it serves as both a consistent stream of revenue as customers buy wine, and also a loyalty club.
To get a better sense of the company and its strategy, check out our podcast episode with Founder Tim McEnery from last March. He talks a lot about the company’s goals of becoming more of a “lifestyle” brand, something the chain’s two new restaurants appear aimed at accomplishing. Cooper’s has seemed destined for an IPO for some time.
Tropical Smoothie, meanwhile, could give the public markets another beverage concept—though the company sells plenty of food.
The chain was one of the industry’s top performers in 2020, during the pandemic, with system sales growing nearly 20%, according to Technomic. Its sales also took off early in 2021.
Yet it has also been one of the most consistent performers among large chains. System sales have grown an average of 21% a year since 2015, growing by 164% over that time, while unit count has more than doubled. And Dutch has been a strong performer, which could perhaps whet the appetite for investors seeking more beverage concepts.