Is Chipotle the Next Yum! Brands?
In my last article on Chipotle Mexican Grill , I posited that the restaurant company was still in a relatively early stage of growth, so long as management continued to expand the company's reach to include other cultural food themes. Recent news from Chipotle indicates that not only is the company expanding into Southeast Asian food via its ShopHouse brand, it is also eyeing the popular pizzeria segment. With an expanding brand lineup, investors need to start thinking of Chipotle as a possible competitor to Yum! Brands .
No one-trick wonder
For as long as I can remember, critics of Chipotle have often bashed the company for its simple menu and lack of diversity, as if somehow only making Mexican-themed food was a major drawback. Well, those naysayers can stop now because the company is showing that it has aspirations to be much more than a burrito-maker.
While still in the very early stages of expansion, management at Chipotle has been testing its version of Southeast Asian-themed food via its new brand called ShopHouse. The ShopHouse concept is very similar to the Chipotle Mexican Grill concept in that it focuses on simplicity and high-quality ingredients above all else.
In a recent statement, Chipotle founder, chairman, and co-CEO Steve Ells explained, "I believe that Chipotle's success isn't necessarily based on burritos and tacos, but rather a unique system that combines our passion for using great ingredients, classic cooking methods, and an interactive service format that allows customers to pick and choose exactly what they want to eat."
However, the most important part of Ells' statement was what he said next: "Many different cuisines could fit into this model that will help to redefine fast food."
Not only did Ells' comments indicate that the company is open to exploring other food-themes besides Mexican and Southeast Asian, it also confirmed what I have long suspected, that Chipotle is no longer content to simply be a burrito company.
Admittedly, when I first thought about which cuisine segment Chipotle could enter next, pizza was not at the top of my list. However, in a recent statement by the company, Chipotle announced plans to expand upon the pizzeria concept it started in May.
Known as Pizzeria Locale, Chipotle has partnered with restaurateurs Bobby Stuckey and Lachlan Mackinnon-Patterson to launch a pizza concept that operates in the popular fast-casual segment. The main idea is to combine Stuckey and Mackinnon-Patterson's pizzeria expertise with Chipotle's signature approach to fast-casual dining.
Ells explained in the company statement, "Opening Pizzeria Locale using a model similar to Chipotle allows us to make extraordinary pizza, made with high-quality ingredients accessible to everyone."
With one Pizzeria Locale already open, Chipotle is planning to open another two locations in the Denver region in the future.
The next Yum! Brands?
Ells made it very clear in the company's recent statement that both ShopHouse and Pizzeria Locale should not be considered major drivers of growth for the foreseeable future. While the company's growth is still largely dependent on Chipotle Mexican Grill, investors should be excited at the potential for both of these brands in the long term.
At the end of the third quarter, there were 1,539 Chipotle Mexican Grill restaurants open for business, and that number is still growing significantly. Currently, there are only six ShopHouse locations and one Pizzeria Locale location, so the potential for growth between the two new brands is immense.
What's interesting is just how similar Chipotle's brand lineup now resembles that of Yum! Brands. Despite targeting a more upscale clientele with higher price points, Chipotle Mexican Grill is comparable to Yum! Brands' Taco Bell. Similarly, Pizzeria Locale is shaping up to be comparable to Yum! Brands' Pizza Hut.
With a market capitalization of $15.9 billion, Chipotle is currently about half the size of Yum! Brands, which has a market capitalization of $32.4 billion. However, both companies are expected to experience relatively similar growth going forward. The following is a breakdown of both companies' growth projections for 2014:
Chipotle Mexican Grill
Revenue Growth 2014 (projections)
EPS Growth 2014 (projections)
Although growth appears similar, it is important to note that Yum! Brands is coming off a particularly bad fiscal 2013 in which the company is expected to post a 3.2% decline in revenue and 10.2% decline in earnings per share. Chipotle has been far more consistent, as it is expected to end 2013 with impressive revenue growth of 17% and even better EPS growth of 19.7%.
Despite management's constant warnings to not view Chipotle's two new restaurant brands as meaningful contributors to growth for a while, long-term investors must be excited by the company's future growth prospects. Not only does the addition of new restaurant brands lessen the company's overall dependence on Chipotle Mexican Grill, the new food-themes allow the company to appeal to completely new groups of consumers.
While the new brands are admittedly very small at the present time, if they are even half as successful as Chipotle Mexican Grill has been, the moves are a huge win for investors. It may almost be time for the company to consider dropping 'Mexican Grill' from its name; just Chipotle could soon suffice!
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The article Is Chipotle the Next Yum! Brands? originally appeared on Fool.com.Philip Saglimbeni owns shares of Chipotle Mexican Grill. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of 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.
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