Chipotle Mexican Grill Inc. (CMG, Financial) operates Chipotle Mexican Grill restaurants. Chipotle Mexican Grill restaurants serve a menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. The company operates around 1,410 restaurants.
Chipotle has been in business for 20 years. The brand is not new to consumers.
Performance Report Card
Chipotle's average same-store sales growth for the prior three years was 7.6%. After the recent year-end results, Chipotle's updated three-year average is higher, at 8.1%. Restaurant growth, meanwhile, clocked in at 14% from 2009 through 2011. In the last three years, that number's stayed right on par, at 14%. Chipotle's fourth-quarter net income increased nearly 30 percent to $79.6 million, or $2.53 per share.
Fabulous is a good way to summarize Chipotle Mexican Grill's full-year operating results. Revenue was up 17.7% over the previous year to reach $3.21 billion. Chipotle achieved this result because its comparable-restaurant sales rose 5.6% due to increased traffic and it opened 185 new restaurants in 2013, which brought its total store count to 1,595.
For the full year, labor, occupancy, and other operating costs declined as a percentage of revenue for Chipotle. General and administrative costs declined by 40 basis points as a percentage of revenue as the costs were spread over the higher revenue base. This solid operational expense management resulted in a net income increase of 17.8%, which matched the increase in sales. An over-10% net profit margin on sales for a full year is a great achievement for a restaurant company. In addition, the company increased its restaurant count by 13% in just one year.
No Compromise When It Comes to Quality
The company strives to use the highest-quality ingredients, which include organically grown produce and naturally raised pork, beef, and chicken — a concept the company calls Food With Integrity. This integrity comes at a price — higher than industry-average food costs — but Chipotle also tries to keep the prices of its menu items affordable for the average consumer.
Danielle Nierenberg, co-founder and president of The Food Tank, an organization that studies environmental solutions for the food industry, said she hopes this type of marketing will affect people’s lives on a practical level. “Chipotle is trying to hit consumers who might not be demanding better practices from their chains, but this is a way to connect people to their food, get them to put a face to it and encourage them to think more about these issues when they’re out grocery shopping,” she said.
New Launch
While other fast-food chains might try to entice potential customers with images of satisfied-looking folks chomping on burgers, the Colorado-based chain tends to eschew traditional advertising methods. Chipotle has spent more than $1 million launching a satirical web series on Hulu called Farmed & Dangerous.
The satirical show is set up to poke fun at big agriculture and its unsavory practices. Though the first of the four-part series just launched on Monday, food experts are already jumping into the discussion about what it means for the industry. “The series is funny but also dead serious,” said Michael Pollan, author of "Cooked" and "The Omnivore’s Dilemma," in an exclusive interview. “It’s a stern challenge to the rest of the fast food industry, who would rather not have a public conversation about how the meat they’re serving is produced,” he said.
An Insight into Its Spicy Future
Today, Chipotle's well on its way to becoming a fast-casual restaurant empire, with 16 international locations and budding concepts in Asian cuisine and Neapolitan pizza through ShopHouse and Pizzeria Locale.
Chipotle raised its 2014 forecast to call for low to mid single digit same-restaurant sales increases, excluding any menu price increases. Its prior call was for an increase in the low single digits. Executives also plan to open 180 to 195 new Chipotle restaurants in 2014, more than ever before.
Chipotle made news in 2013 with talk of two new concepts to expand beyond the core Chipotle brand, giving some investors dreams of another decade-plus of sustained big growth. The first, Shophouse Southeast Asian Kitchen, was first introduced in 2012, but expansion has only just begun, with six locations open and a handful more set to open in early 2014. The brand-new Pizzeria Locale, in partnership with Denver restaurateurs Bobby Stuckey and Lachlan Mackinnon-Patterson, consists of a single location in Denver so far.
While both concepts offer tremendous potential, CEO Steve Ells has stated numerous times over the past year that the core Chipotle brand will remain the key growth driver for the foreseeable future.
To End
Chipotle operates in the fast-casual segment of the restaurant industry, which is growing at a nice clip because consumers are responding favorably to food quality that is as good as that of full-service restaurants combined with the convenience of a quick-service operating model.
Chipotle has become famous for promoting antibiotic-free meat and dairy products and working with highly regarded purveyors such as Niman Ranch. They post a list of suppliers on their web site and have also been known to display glossy color posters featuring individual farmers in their restaurants.
By buying ethically farmed meat, Chipotle actually helps the industry raise its standards. It becomes possible for quality farmers to sell their products at a better price, which enables more people to buy quality meat. It drives competition to follow suit. It makes antibiotics an issue. In principle, we all win. It is expected that the company will create good returns to its shareholders.
