Chipotle's new Farmesa restaurant shows that the brand sees 'an opportunity to grow': Analyst
Chipotle (CMG) is out with a new restaurant concept called Farmesa.
The California-inspired, concept eatery is in partnership with Kitchen United Mix, a ghost kitchen, and is set to officially launch next month. Located in Santa Monica, California, guests can order via kiosks at the location, on Kitchen United's website for pickup, or via delivery through apps like DoorDash and UberEats.
Morningstar Analyst Sean Dunlop, who has a price target of $1,550 on the stock and three-star rating (similar to a Hold at the firm), called the new concept's digital-only ordering system "a manifestation" of Chipotle's goal of higher digital integration.
In its latest quarterly results, the company noted that digital sales accounted for 37.4% of food and beverage revenue.
The Farmesa brand has a key audience in mind too, Dunlop said.
"It's a premium-priced product. It's akin to upscale, fast casual, like Flower Child or Sweetgreen, so the the TAM [total addressable market] is not infinite," he said.
Amid high inflation, "affluent consumers" have been mostly "healthy over the last couple days and months in the restaurant space," and there's been no recent pushback from the higher income consumers in the U.S. at chains like Starbucks, Dunlop said.
Farmesa's bowls, similar to Chipotle's model, retail from $11.95 to $16.95 and include the choice of a protein, greens or grain, two sides, a choice of five sauces, and a topping option. Specifically, the menu includes grilled tri-tip steak, everything spice-crusted Ora King salmon, whipped potatoes, golden beets, sprouted cauliflower, and sweet potato chips. Beverage offerings will be from Tractor Beverage Co., which Chipotle launched a partnership with in 2020.
The menu was curated by James Beard Award-winning Chef Nate Appleman, who previously led menu innovation at Chipotle and will now serve as Farmesa's Director of Culinary Innovation.
Citi analyst Jon Tower said the brand's launch "does signal the company sees an opportunity to grow beyond its core concept utilizing many of attributes of the Chipotle brand (e.g., simple menu, 'real' ingredients, easy operations)." Citi has a Buy rating and price target of $1,986.
Dunlop said Chipotle has "a ton of free cash flow sitting around to accelerate development" and with a similar supply chain with local suppliers, the overall cost to Chipotle's bottom line is not a lot and the "cost of failures is pretty minimal" for the company.
"There's no reason that a company like Chipotle wouldn't look to a complementary brand, and the industry is moving," Dunlop said. "You'll see a lot more of a restaurant operating companies like Inspire Brands...Restaurant Brands International."
But, he added, it won't be easy. "It's always been a very competitive industry, it's very difficult to build a brand from scratch."
Whether or not the concept will expand to other locations depends on its performance, Chipotle CEO Brian Niccol said. "We're excited to test and learn on before we determine a broader rollout strategy."
—
Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube
