http://money.cnn.com/2015/10/20/investing/chipotle-third-quarter-earnings/index.html?iid=hp-stack-dom
The all familiar fast casual restaurant chain that has created a cult like following in recent years has just recorded it's worst sales growth in over two years. It seems as if Chipotle might be at its pinnacle in terms of growth, seeing as it has started to plateau in the recent quarters. Although they are still seeing tremendous sales figures that companies dream of, their investors don't seem to be happy because their stock price fell by 6% after their earnings were announced. Chipotle's CEO and co-founder Steve Ells was quoted saying "I am confident that we have the right food culture and people culture in place for us to continue our momentum," however from a market perspective, is the Chipotle hype and following starting to decrease and wear out among consumers?
In 2012 Chipotle had 1,200 locations, but now they are expected to have over 2,000 by the end of this year. That being said, could their rapid growth and expansion have caused this economic slowdown for them, because it seems to appear that way. Although it is very hard to continue successful operations like they have done in recent years, it will be interesting to see what Chipotle does to rebound in an attempt to reestablish themselves in the market place.
9 comments:
It is plausible that the recent economic slowdown is due to the fact that Chipotle has become overly available and loyal customers are viewing the chain as too much of a typical fast food restaurant. Now that Chipotle is pretty much everywhere, it is not as much of a coveted hot spot for food. It can be compared to McDonald's in that there are locations everywhere, thus people don't necessarily seek it out as much. Also, with rising competition in the same segmented industry, Chipotle may not be viewed as unique anymore. Further, quick service, buffet style restaurants that serve "healthier" options (ie: Piata), are on the rise and directly compete with Chipotle.
Another piece of this puzzle to consider as well was the recent suspension of the sale of carnitas. This was due to a supplier of carnitas direct violation of Chipotle's core animal welfare standards. Due to this, sales could have decreased as a new supplier was not quickly found as it was not an easy process. I think Chipotle has an interesting place in the market as they not only market themselves as a healthy option, but also one that has high standards about the animals and products they serve. Chipotle also is a business model that is easily transferable to many other sectors of the food industry ie. hamburgers with all the toppings, Chinese food etc. I think Chipolte will begin to look at these other options to broaden their brand and niche their own place in the market.
I think Sophia pointed out many important facts in her post. Years ago, Chipotle was a fast food restaurant that practically owned the entire market in which they were concentrated. They thrived on the fact that no one else had make-your-own burritos in the industry. Only fast food restaurants like McDonald's, KFC, Subway, and Taco Bell to name a few existed. Recently however, more and more make-your-own burrito chains have become apparent like Quodba and Hot Head Burritos.
I think in an attempt to revitalize their sales and gain more of a market share, Chipotle has marketed non GMO and antibiotic free foods - something that others in the industry do not yet offer. This new expensive fixed cost coupled with the fact that new stores are opening everyday across the country I think, has caused Chipotle to hit a plateau in growth - or for it to look like it did.
In the years to come, I think the availability of Chipotle in the marketplace will hurt them, but I think overall, it will not cause them to plateau. Right now, I think Chipotle is currently shown as plateauing in the market due to the fact that they are waiting for their new market strategies to begin showing positive numbers. I think what will be curious to see is how exactly Chipotle will continue to market themselves as different in the marketplace? Being labeled as a NON-GMO company can only get them so far... So, what is next?
I agree with all the above comments that it is possible that Chipotle has run its course, its rapid growth, first the only one in the market, has now had to deal with the emergence of competitors like Qdoba. My opinion is that Chipotle needs to expand. They have made strides to, offering a tofu meat option, tacos, placing your order online. Now maybe it could be time to make a move towards delivery, or serve more Mexican options like a taco salad or a quesadilla. To gain back its speed, Chipotle must bring something new to the market.
Chipotle is also experimenting with other types of food. For example in Washington DC, there's a restaurant called Shop House, which serves Asian food. It's owned by Chipotle and doesn't serve "typical" Asian food; it serves food inspired by Thailand, Vietnam, Malaysia and Singapore (http://www.shophousekitchen.com/about.html). In my personal experience, Shop House is amazing and there is always an extremely long line. And it's growing rapidly. If Chipotle focuses on expanding their business beyond just Mexican food and capture other interests, it could be fantastic.
The article said that growth fell by only 2% from the previous year and now is around 12%, which in my opinion, is still good. It is not always possible for bigger brands to keep growing at a constant rate, and this current growth is perhaps saturated in this restaurant chain market. I do feel expanding the brand line and offering more varied food options with deals focused on one or more target groups of consumers will surely bring luck for the company and help boost up its sales and growth.
The fast causal market is not maturing out and I do not think that Chipotle will find themselves facing a lengthy term of decreased growth. One of the things I have seen is that Chipotle is starting to offer new products under different companies. The new "asian style" chipotle called Shophouse is being tested out in certain markets. I believe this fast casual experience with asian food will be successful and Chipotle will not falter for long.
Eventually Chipotle is going to plateau hard unless they find ways to increase their income and profits. The problem with companies like Chipotle is that once they have locations everywhere they must find other ways to increase their income by doing things differently. Often increases in income are done through innovation, which would be hard to do for Chipotle: the burrito industry doesn't have much room for innovation. Chipotle could stop this inevitable plateau by expanding into more countries. Currently the company isn't completely international. It could also increase its revenues by providing more alcoholic options and making itself more of a sit down atmosphere, but then this would detract from its current quick paced mission that makes it unique. It could also start to offer more options to appeal to a wider audience, but again, this would change its current business plan.
Chipotle may have reached a plateau, but it's obvious that it is still capable of significant growth and its popularity has not decreased at all. More and more people are trying to Chipotle and the rest of its customers are very loyal. The company also has received a lot of positive media attention for providing workers with many opportunities to work their way up in the Chipotle corporate ladder. Their campaign for using food with out GMO's will also remain popular. Its only major concern is competitors that are providing a similar dining experience, like Piada, although that is Italian-based and Chipotle is TexMex-based.
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