2 companies that could eat Chipotle Mexican Grill's lunch

In the summer of 2015, shareholders in Chipotle Mexican Grill, Inc.(NYSE: CMG) had enjoyed a stellar five-year return of 400%. Then the e-coli scandals came along, kneecapping Chipotle's seemingly unstoppable growth. Two-and-a-half years later, the burrito business has seen share prices plunging 57% lower.

I wouldn't bet on Chipotle making a comeback from these multi-year lows. Instead, you should look at Restaurant Brands International(NYSE: QSR) and Del Taco Restaurants(NASDAQ: TACO) -- both of whom are quite capable of beating Chipotle at its own game of affordable, high-quality food services.

Cajun shrimp and chicken, anyone?

Restaurant Brands was born from the combination of Burger King and Tim Hortons. The American burger chain and the Canadian doughnut shop still account for 94% of the company's total quarterly sales, but neither one of those operations poses much of a direct threat to Chipotle.

Recently acquired cajun quick-service chain Popeyes, however, can be a big thorn in Chipotle's side.

Popeyes' New Orleans-style shrimp and chicken dishes provide another flavorful option for diners on a budget, fully in class with Chipotle's Mexican fare. The chain's chosen cuisine is of a less common style than the Tex-Mex food Chipotle serves, making the brand stand out as a unique dining option.

And Popeyes is off to a running start under Restaurant Brands' management. Third-quarter sales rose 6.3% year over year, while the segment's adjusted EBITDA profits surged 43% higher. The chain already sports more than 2,600 locations, but Restaurant Brands' deep pockets should help Popeyes expand much faster in the near future.

Meanwhile, shares of Restaurant Brands are trading at a reasonable valuation of 23 times forward earnings. The stock is on a roll, based on tremendous business results. And the new ownership structure is pushing Popeyes into the mainstream in a whole new way.

Chipotle should be shaking in its cilantro-dusted boots. 

RELATED: Check out Chipotle restaurant through the years: 

21 PHOTOS
Chipotle restaurants through the years
See Gallery
Chipotle restaurants through the years
DENVER, CO - FEBRUARY 9: Steve Ells, 32, owner of the Chipotle Mexican Grill restaurant chain, in front of one of his stores at 32nd & Lowell Blvd. in Denver, Colorado on Monday, Feb. 9, 1998. (Photo by Hyoung Chang/The Denver Post via Getty Images)
Exterior of the Chipotle restaurant on Wisconsin Ave. NW Washington, D.C. (Photo by Michael Williamson/The Washington Post/Getty Images)
GLENVIEW, IL - DECEMBER 02: Activity is seen near the order-counter area inside a Chipotle restaurant December 2, 2005 in Glenview, Illinois. McDonald's Corp., owners of 92 percent of Chipotle, are preparing its Mexican-style eateries for an initial public offering. (Photo by Tim Boyle/Getty Images)
CHICAGO - JANUARY 26: The Chipoltle Mexican Grill logo is painted on the door of one of the Chain's restaurants in the trendy Bucktown neighborhood January 26, 2006 in Chicago, Illinois. McDonald's spin-off of the restaurant chain ended the day with the Initial Public Offering (IPO) closing at $44, double its opening price. It was the best opening day gain by a U.S.-based IPO in more than five years. (Photo by Scott Olson/Getty Images)
UNITED STATES - JANUARY 26: Workers prepares meals at Chipotle Mexican Grill in West Bloomfield, Michigan on Thursday, January 26, 2006. Chipotle Mexican Grill Inc.'s shares more than doubled on the first day of trading after McDonald's Corp. took the fast-growing chain public. (Photo by Jeff Kowalsky/Bloomberg via Getty Images)
DENVER, CO - JANUARY 26: The original Chipotle restaurant at 1644 E. Evans Ave in Denver, shown here on Jauary 26, 2006. (Photo by Cyrus McCrimmon/The Denver Post via Getty Images)
A Chipotle burrito in it's signature aluminum wrap on Friday, February 12, 2010. Burrito was that the original location on E. Evans Ave. Cyrus McCrimmon, The Denver Post (Photo By Cyrus McCrimmon/The Denver Post via Getty Images)
Chipotle burritos at the original location on E. Evans Ave. Bryan Sawyer who eats about 3 times a week at the Chipotle eats a steak black bean burrito on Friday, February 12, 2010. Cyrus McCrimmon, The Denver Post (Photo By Cyrus McCrimmon/The Denver Post via Getty Images)
Gregory Rec/Staff Photographer: -- Kyle Braley stirs a tomatillo green chili salsa at Chipotle Mexican Grill in South Portland on Monday, December 13, 2010. The popular restaurant chain, which serves naturally-raised beef, chicken and pork, has its grand opening today. (Photo by Gregory Rec/Portland Press Herald via Getty Images)
A pedestrian walks into a Chipotle Mexican Grill Inc. location in New York, U.S., on Wednesday, Oct. 17, 2012. Chipotle, the best- performing restaurant stock in the Standard & Poor's 500 Index last year, is expected to release earnings data on Oct. 18. Photographer: Scott Eells/Bloomberg via Getty Images
The Chipotle Mexican Grill Inc. logo is displayed on a paper bag at a location in New York, U.S., on Wednesday, Oct. 17, 2012. Chipotle, the best- performing restaurant stock in the Standard & Poor's 500 Index last year, is expected to release earnings data on Oct. 18. Photographer: Scott Eells/Bloomberg via Getty Images
Chipotle Mexican Grill Inc. employees prepare food at a location in New York, U.S., on Wednesday, Oct. 17, 2012. Chipotle, the best- performing restaurant stock in the Standard & Poor's 500 Index last year, is expected to release earnings data on Oct. 18. Photographer: Scott Eells/Bloomberg via Getty Images
A steak burrito is arranged for a photograph with a drink and bags of chips at a Chipotle Mexican Grill Inc. restaurant in Hollywood, California, U.S., on Tuesday, July 16, 2013. Chipotle Mexican Grill Inc. is scheduled to release earnings data on July 18. Photographer: Patrick T. Fallon/Bloomberg via Getty Images
A employee sprinkles cheese on a burrito at a Chipotle Mexican Grill Inc. restaurant in Hollywood, California, U.S., on Tuesday, July 16, 2013. Chipotle Mexican Grill Inc. is scheduled to release earnings data on July 18. Photographer: Patrick T. Fallon/Bloomberg via Getty Images
Employees prepare lunch orders at a Chipotle Mexican Grill restaurant at Madison Square Park in New York, U.S., on Wednesday, Jan. 29, 2014. Chipotle Mexican Grill Inc. is expected to release earnings figures on Jan. 30. Photographer: Craig Warga/Bloomberg via Getty Images
Employees prepare lunch orders at a Chipotle Mexican Grill restaurant at Madison Square Park in New York, U.S., on Wednesday, Jan. 29, 2014. Chipotle Mexican Grill Inc. is expected to release earnings figures on Jan. 30. Photographer: Craig Warga/Bloomberg via Getty Images
MIAMI, FL - MARCH 05: A Chipotle restaurant is seen on March 5, 2014 in Miami, Florida. The Mexican fast food chain is reported to have tossed around the idea that it would temporarily suspend sales of guacamole due to an increase in food costs. (Photo by Joe Raedle/Getty Images)
A Chipotle eatery in the Financial District of Manhattan NYC viewed from the outside looking in shows the interior design as well as people eating & talking, & also reflects the urban building from across the street in the upper left corner of the window
NEW YORK CITY, NEW YORK, UNITED STATES - 2015/10/18: Restaurants in USA: Chipotle Mexican Grill Chipotle Mexican Grill, Inc. is a chain of restaurants in the United States, United Kingdom, Canada, Germany, and France, specializing in Mission burritos and tacos. (Photo by Roberto Machado Noa/LightRocket via Getty Images)
NEW YORK, NEW YORK -- FEBRUARY 8: A sign sits in the window of a Chipotle restaurant on Broadway in Lower Manhattan telling customers the restaurant is closed until 3 p.m. on February 8, 2016 in New York City. The Mexican food chain is closing stores for lunch nationwide for a meeting on food safety following a number of E. coli outbreaks. (Photo by Andrew Renneisen/Getty Images)
HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

The newcomer with more than 50 years of history

Del Taco charges Chipotle straight on. There's a ton of overlap between the two menus, featuring high-end burritos and tacos front and center. Their business strategies focus on high-quality ingredients, though Del Taco delivers this high-end experience at generally lower price points. The similarities sometimes seem downright intentional; both companies recently introduced quesodips, for example.

So this is a head-to-head rivalry, with a few interesting twists.

  • Del Taco has been in business since 1964, arguably inventing the drive-through and the quick-serve taco shop in general.
  • The company has built a large and devoted fanbase in Southern California, only recently launching a nationwide expansion effort. At the latest count, there were 305 company-owned Del Taco restaurants and 253 franchise-operated locations across 15 states, leaving lots of room for expansion.
  • The Tex-Mex flavor has been accompanied by all-American burgers and fries from the start. In fact, you can add fries and special sauce to any menu item -- including burritos and tacos -- by ordering the "bold" version. Quirks like these could help Del Taco pull customers away from Chipotle's less adventurous fare.

The stock trades at 21 times forward earnings, versus 33 times for Chipotle. It's also conspicuously affordable from a price-to-sales or price-to-free cash flow point of view. Buying Del Taco today is a lot like getting into Chipotle before that brand become a national treasure -- only with decades of additional operating experience under its belt.

Again, Chipotle should worry about this experienced rival's fresh expansion plans.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

Read Full Story

Can't get enough business news?

Sign up for Finance Report by AOL and get everything from retailer news to the latest IPOs delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.