Is Chipotle about to go into the burger business?
Chipotle (NYSE: CMG) changed how Americans eat Mexican food and now it may do the same in the hamburger space.
While the company won't be adding burgers and fries to its namesake restaurants, it has made moves that suggest it intends to open a burger-based concept. The company, which attempted to trademark the phrase "better burger" earlier this year, before abandoning the effort, appears to have indirectly filed a trademark application for the name TastyMade, Eater.com reported.
The application was not filed directly by the Mexican chain. Instead it was submitted by Clement Hayes, a lawyer whose firm has worked with Chipotle for a number of years as its attorney of record, the food website explained, adding that the applicant's address is the same as Chipotle's legal firm, Messner Reeves.
Chipotle has not confirmed that it plans to use TastyMade as the name for a hamburger restaurant, but it has not been shy about its intent to explore the space. "It's no secret that we are interested in a burger concept. When we have more details to share regarding our plans, we will make those available," spokesman Chris Arnold told Eater.com.
Chipotle Mexican Grill restaurant chain:
Why open a burger chain?
While Chipotle's core brand has suffered due to its food safety scandal, with revenue dropping 23.4% in Q1, the company has continued to slowly grow two non-Mexican concepts, while expressing interest in others. "We have two non-Chipotle growth seeds open now -- ShopHouse and Pizzeria Locale -- and have noted before that the Chipotle model could be applied to a wide variety of foods," Arnold told USA Today in March.
Hamburgers would be a logical move for the company because burger chains account for nearly 40% of sales for the Top 100 restaurant chains by sales volume, according to Nation's Restaurant News (registration required). That's almost double the next biggest category and three of the top 10 chains, including No. 1 McDonald's (NYSE: MCD) can generally be called hamburger chains (though they sell much more than that).
What is Chipotle going to do?
While the company has been tight-lipped about its specific plans, looking at what is has done with ShopHouse and Pizzeria Locale suggests that it would approach burgers in the Chipotle fashion. That means higher-end ingredients with consumers getting the option to fully customize their orders.
The first TastyMade looks to be set to open in Central Ohio later this summer with a menu focused on burgers, fries, and milkshakes, according to Eater, which cited an anonymous source.
This would be a logical play for the company, though perhaps not at the most logical time given that its core brand still faces fallout from its recent food safety problems. Still, burgers remain an opportunity and while the space for higher-end hamburger chains has become crowded, Chipotle should ultimately do well in the space.
If TastyMade follows the ShopHouse and Pizzeria Locale example, this will not be a fast rollout. instead, the company will take its time to refine the concept before opening more stores. That's a smart way of playing things especially at a time when the Chipotle brand does not stand for quality in the way it did for many consumers in the recent past.
McDonald's does not yet have anything to worry about. It's status as the No. 1 chain by sales should be safe for a long time, but going forward Chipotle could carve out some McBusiness. It would be a pivot toward a category that has huge sales potential.
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Daniel Kline has no position in any stocks mentioned. He was never worried about food safety at Chipotle and eats their regularly. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.