Though it isn't remotely on the scale of the potential merger of Burger King (BKW) and Tim Hortons (THI), Buffalo Wild Wings (BWLD) has made another smart investment outside its core offering of hot chicken wings, taking a majority stake in a small Dallas-based taco chain.
Buffalo Wild Wings didn't disclose financial terms, but said Monday it's invested in Rusty Taco, a nine-store operation that opened its first location in 2010. Beyond Dallas, Rusty Taco has stores in Denver, a market popular with chains and home to Mexican-style fast-casual restaurant Chipotle (CMG), and the Minneapolis-St. Paul area, where Buffalo Wild Wings is based.
Rusty Taco describes itself as a maker of "street-style tacos" that are prepared fresh to order from a small menu. While it may be easy to dismiss Rusty Taco as yet another Tex-Mex or Mexican-influenced chain, it's also in an important and fast-growing part of the restaurant arena, as both fast casuals and Mexican stores continue to increase in popularity. Research firm IBISWorld has forecast that the number of Mexican-style restaurants in the U.S. will be at around 47,000, from about 42,000 currently, in the next five years.
Shares of Buffalo Wild Wings were up 2.6% to $148.08 after the news. Since it's a strategically strong move for the company, it probably would have lifted the stock on any trading day. However, it's likely the degree of the gain was being influenced by the Burger King-Tim Hortons talks. (Monday also saw a broad rally on Wall Street, with the S&P 500 hitting a record 2,000 in intraday trade.) Buffalo Wild Wings, with more than 1,000 stores, has benefited from greater consumer interest in both chicken and hot wings, along with the fact that it provides a host of TV sports options and beers, which account for 20%-plus of its revenue. Because it has a market capitalization of only about $2.8 billion, it's almost certain some traders are viewing it as an affordable, still-growing buyout candidate for a large chain, especially now that restaurants in general will be at the center of merger speculation.
Regardless of that, the taco bet is a sensible one, as the Tex-Mex and Mexican-styles are expected to keep building their already enthusiastic dining audience amid further immigration from Mexico and Latin America.
It's also just the latest in non-wings deals for Buffalo Wild Wings. Already, the company has a minority investment in PizzaRev, a pizza maker that's part of the buzzy craft-pizza sector. The company said in a press release it was "actively looking for additional concepts to invest in to build a portfolio of emerging brands."
Buffalo Wild Wings' stock was flat this year ahead of the announcement, after doubling in 2013. As has been the case with many restaurants, investors have been far less interested in the shares in 2014 after a multiyear rally. Last year a broad group of restaurants surveyed by Yahoo Finance rose more than 50%.