Author Topic: CMG - Chipotle  (Read 101821 times)

johnny

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Re: CMG - Chipotle
« Reply #10 on: August 05, 2015, 08:29:39 PM »
I think the "international expansion" narrative is weak. I've been hearing about international for years, and it seems like we went from 16 locations at the end of 2013 to 17 at the end of 2014. I think this is perfectly understandable, because the challenges to internationalizing the brand are huge.

1. There is no taste for the Americanized Mexican concept internationally. The "American" aspect of the brand is not as powerful as it once was (McDonalds in 1990s Russia was about a lot more than burgers, it was a symbol of freedom. KFC in 2000s China was about a lot more than chicken, it was about a rapidly growing economy, and the newly plausible concept of eating a meal consisting largely of meat). And I think it goes without saying that most foreign cultures have zero interest in Mexican anything. And critically, they haven't had their palates trained for Mexican food in the way that practically every American has. Taco Bell has a rich history of international failure, even though the expansion was being managed by the same parentco that was so successful with KFC.

Even with the aspirational nature of "American" food, it is pretty well-documented that American QSRs often have hilariously different menus overseas. This is, in part, because they do things like adopt master-franchisee organizational models and give an appropriate amount of discretion to their local partners to figure out how to make things work locally. Curry pork chops at KFC in China, Brie Nuggets at McDonalds in Russia, Mayonnaise pizza at Dominos in Japan. Can you imagine Chipotle doing this? Have they demonstrated an aptitude for this? It feels very dissonant with the culture they've established.

2. The company-owned model is great for US growth, in terms of quality control and brand-preservation. But the relative uniformity of the relevant laws and consumers in the 50 states sort of neutralize what has been a historical franchise advantage. The game changes when you're talking about another continent --an entirely separate supply chain,, completely different labor pool, completely different labor regulations, etc. The tradeoffs of not franchising are going to become a lot more significant, very quickly. If you're modeling 1,000 new international locations, an important question is exactly where those locations are, and how many completely separate compliance/regulation/marketing silos are going to be hidden away somewhere in CMG's G&A.

I'm short CMG, but I'm not worried about international expansion blowing my face off. I'm far more concerned about their other concepts getting traction, but again, only domestically.

Side note, for the first time ever, I have received promotional coupons from Chipotle. Buy one get one free on burritos, tacos, etc. For a company that has historically implied that the ceiling to their sales growth is mostly how many people they can process at the register during lunch, this feels like an important symbol of...something.


Palantir

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Re: CMG - Chipotle
« Reply #11 on: August 11, 2015, 03:58:47 PM »
I avoid Chipotle....



......because there is always a huge-ass line.
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JayGatsby

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Re: CMG - Chipotle
« Reply #12 on: August 11, 2015, 04:07:11 PM »
Side note, for the first time ever, I have received promotional coupons from Chipotle. Buy one get one free on burritos, tacos, etc. For a company that has historically implied that the ceiling to their sales growth is mostly how many people they can process at the register during lunch, this feels like an important symbol of...something.

Was that for a new location? They've been promoting the new locations with BOGO coupons for years. I don't know that I've seen them for existing locations.

I think you're right that international isn't their lowest hanging fruit for now. They've been pretty stable at ~190 new restaurants a year and they seem to have enough spots in the US to continue to put those.

fareastwarriors

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Re: CMG - Chipotle
« Reply #13 on: August 11, 2015, 04:14:46 PM »
I avoid Chipotle....



......because there is always a huge-ass line.

So true...

intothebreach

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Re: CMG - Chipotle
« Reply #14 on: August 11, 2015, 05:04:26 PM »
Anyone interested in Chipotle should read the top of Brooklyn Investor's January post on Shake Shack that talks about CMG from the point of view of both a long time investor and consumer:

http://brooklyninvestor.blogspot.ca/2015/01/shake-shack-inc-shak.html?m=1

I would actually argue that beyond what is now a strong brand (as in a well-defined, undiluted sort of way), Chipotle actually has a moat built on it being designed for higher throughput, enabling them to process more orders than regular fast food restaurants.

I regularly kick myself for not buying in when Einhorn created a very good opportunity to do so by shorting them because of the threat of Taco Bell's new offering (I know...)

bci23

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Re: CMG - Chipotle
« Reply #15 on: August 11, 2015, 08:53:29 PM »
Anyone interested in Chipotle should read the top of Brooklyn Investor's January post on Shake Shack that talks about CMG from the point of view of both a long time investor and consumer:

http://brooklyninvestor.blogspot.ca/2015/01/shake-shack-inc-shak.html?m=1

I would actually argue that beyond what is now a strong brand (as in a well-defined, undiluted sort of way), Chipotle actually has a moat built on it being designed for higher throughput, enabling them to process more orders than regular fast food restaurants.

I regularly kick myself for not buying in when Einhorn created a very good opportunity to do so by shorting them because of the threat of Taco Bell's new offering (I know...)

I've actually thought about this exact same thing recently. I think Chipotle's biggest competitive advantage is their ability to source high quality ingredients at the lowest price possible. Think about other burrito chains. The food quality is way lower and the price is higher. This is a very powerful advantage for Chipotle that clearly others are having a problem replicating. Sure the food tastes food and they are clearly very good operationally to handle the extremely high traffic that goes through their restaurants but i think the food procurement and pricing is their true competitive advantage.

All of this got me thinking....procuring high quality food, offering it at prices lower than the competition, and extremely fast service. This seems like a formula that could be applied successful in other restaurant concepts. I guess the next question is, what types of concepts would benefit from this approach the most? When you start thinking about Chipotle this way, their valuation starts looking more reasonable. I'm not sure if CMG mgmt views the company in this way though.

ItsAValueTrap

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Re: CMG - Chipotle
« Reply #16 on: August 11, 2015, 09:03:21 PM »
procuring high quality food, offering it at prices lower than the competition, and extremely fast service.

Ikea and Costco take that to an extreme with crazy cheap hot dogs.  Though I wouldn't say that the food is high quality or in the same price category as CMG.

CMG does food theatre well.  Everything other than the food makes the food taste more delicious- the decor, being able to see the food being prepared, etc.
One thing that McDonald's (which used to own CMG) does better than CMG is that McDonald's does breakfast and 24hr, so they utilize their rent better.  McD's does need additional equipment to handle breakfast, so that does take capital.

Quote
This seems like a formula that could be applied successful in other restaurant concepts.
It's generally very difficult to start new restaurant concepts.  Many successful restauranteurs fail when they try it.
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johnny

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Re: CMG - Chipotle
« Reply #17 on: August 11, 2015, 09:21:29 PM »
Side note, for the first time ever, I have received promotional coupons from Chipotle. Buy one get one free on burritos, tacos, etc. For a company that has historically implied that the ceiling to their sales growth is mostly how many people they can process at the register during lunch, this feels like an important symbol of...something.

Was that for a new location? They've been promoting the new locations with BOGO coupons for years. I don't know that I've seen them for existing locations.

I think you're right that international isn't their lowest hanging fruit for now. They've been pretty stable at ~190 new restaurants a year and they seem to have enough spots in the US to continue to put those.

Nope, wasn't location-specific (although the coupons did indicate the nearest location for convenience). I got them at two different addresses in Los Angeles, and then annoyed some people about it and got at least one person to say they saw the same thing in Orange County.

DCG

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Re: CMG - Chipotle
« Reply #18 on: August 12, 2015, 05:43:33 AM »
I avoid Chipotle....



......because there is always a huge-ass line.


Nobody ever goes there anymore. It's too crowded. - Yogi Berra

oddballstocks

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Re: CMG - Chipotle
« Reply #19 on: August 12, 2015, 06:42:33 AM »
I avoid Chipotle....



......because there is always a huge-ass line.


Nobody ever goes there anymore. It's too crowded. - Yogi Berra

This effect is real.  Went last night with the family.  The line went to the door, my wife immediately threw up her hands and said "No way, there is no way we're waiting, it'll take a half hour or more."

I convinced her that they're quick and we should stay.  We were ordering our food in less than five minutes.  Most of the customers were take-out so we found a table as well.  It ended up being fine.

I've waited longer than five minutes to order at McDonalds when there were just one or two people in front of me, so all things considered this wasn't that bad.  But the psychological aspect was bad, I wonder how many others just turned away?
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