Can Chipotle Put Out Taco Bell's Fire?
Yum! Brands is heating things up again. Earlier this week, its Taco Bell chain announced that the latest entry in its wildly successful Doritos Locos Tacos line will take a spicy turn.
Fiery Doritos Locos Tacos will be available next Thursday, though Taco Bell is alerting Facebook fans that they can secure the latest Doritos-dusted tacos as early as Monday.
There was no shortage of cynics when Taco Bell introduced Locos Tacos last year. Late-night comedy shows pounced on the tacos with shells flavored to taste like Nacho Cheese Doritos. However, it was a resounding success. Comps at Taco Bell soared a scintillating 12% during the quarter that they were introduced. Taco Bell has now sold 600 million of those crunchy concoctions between the original Nacho Cheese, and the Cool Ranch flavor that was added earlier this year.
This brings us to Chipotle Mexican Grill . Comparing Taco Bell to Chipotle may be heresy in some circles, but surely some of those 600 million Locos Tacos purchases have come at the expense of a Chipotle order.
Chipotle has been growing same-store sales at a faster clip than Taco Bell for years, but that streak ended last year. Taco Bell's 8% spike in state-side comps edged out the 7% uptick at Chipotle.
Taco Bell also had the lead through the first half of this year, posting gains of 6% and 3% through the first two quarters, respectively. Chipotle's seen same-store sales climb 3.4% through the first six months of the year. Yes, Chipotle did overtake the growth baton this past quarter, but this was also Taco Bell pitted against last year's 13% surge when the Locos Tacos line was introduced.
Chipotle fans will argue that Taco Bell can be ignored, but clearly, there is a cult building around these Doritos-flavored tacos. It's also hard to dismiss Taco Bell after last year's Cantina Bell line of enhanced menu items. Sure, Taco Bell is still way behind Chipotle in many ways, but it's spinning the flavor wheel at a frenetic enough pace where it will have hits from time to time.
Chipotle doesn't play that game. It prefers to stick to its simple and consistent offerings of high-quality eats.
However, when your stock is trading for more than 30 times next year's earnings, and you're growing at a much slower rate than that suggests, there is little room for error.
Fiery Doritos Locos Tacos isn't going to move the needle the way that the original Nacho Cheese Locos Tacos did last year, but Yum! Brands and Doritos parent PepsiCo are just getting started.
PepsiCo markets 123 different Doritos flavors worldwide. We still have 120 more to go before Taco Bell exhausts the potential for new offerings.
The article Can Chipotle Put Out Taco Bell's Fire? originally appeared on Fool.com.Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and PepsiCo. The Motley Fool owns shares of Chipotle Mexican Grill and PepsiCo. 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.
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