What Is the Secret of Chipotle's Success?
Expansion has played a big part in the fast-casual chain's heady growth, but each restaurant is also more than pulling its own weight. The average eatery rang up 10.4 percent more in sales than it did a year earlier. This is the fifth quarter in a row that Chipotle has come through with double-digit year-over-year growth in comps.
What makes Chipotle so cool? What's the chain doing to make sure that it gets even hotter? There's a lot more to the Chipotle story than you might think.
Many credit Chipotle's success to its assembly line where burritos, salads and rice bowls are built up in lightning-quick fashion. However, the same can be said about nearly every player in the fast-growing realm of fast casual.
The truth rests somewhere between the "food with integrity" mantra, the addictive cilantro rice and the trendy nature of hot chains. It's working -- and working well -- but Chipotle is just getting started.
A Chip Off the Old Chipotle
Chipotle announced on Monday that it has just become the first national restaurant chain to eliminate genetically modified organisms from its ingredients. It's a gutsier call than you might think, despite it being fashionable to bash GMOs.
As even Chipotle points out in Monday's announcement, 94 percent of the corn sold in this country comes from GMO strains. Pricing pressures might drive food costs higher for Chipotle with this move, and that could be the least of Chipotle's problems. As pork fans found out earlier this year during the carnitas shortage, limiting suppliers that meet its high standards can sometimes mean having to temporarily take a popular item off the menu.
It's not the only way that Chipotle is shaking things up. Chipotle has been testing delivery through Postmates, a popular website and app that's best described as GrubHub meets Uber. The site lets drivers sign up to deliver orders from participating restaurants. It's not cheap. If you live a couple of miles away from Chipotle, it can run you about $10 on top of your order to have your chicken burrito or carnitas quesadilla brought to your door, and that's before a 9 percent service charge and a tip. However, for folks craving a Chipotle fix without the time or means to make it to the nearest outlet, it's a move that might make sense.
Chipotle can't afford to stand still. One can argue that there's no need to fix what isn't broken, but the chain is bracing investors to expect slowing growth. It sees comparable-restaurant sales climbing in the low- to mid-single digits for all of 2015, suggesting that we're eyeing marginal comps growth after the first quarter's 10.4 percent pop.
The devotion of fans could also be tested. A springtime increase last year was the chain's first major price increase in three years, but it might not be the last. High beef prices may force another increase, so expect to pay more for your steak and barbacoa staples later this year. However, if the hungry didn't flinch at last year's increase -- and the chain's sales growth bears that out -- they probably won't have a beef with pricier beef. Chipotle still has the magic touch.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. Check outour free report on the Apple Watchto learn where the real money is to be made for early investors.