Chipotle Mexican Grill (CMG) Restaurant Unit Growth and Pricing Power Bolster Earnings

March 12, 2013

Chipotle Mexican Grill (CMG) engages in a domestic unit-growth strategy while maintaining pricing power and expanding into new types of operations which enhance profit margins, all while leading in newer consumer trends such as a more transparent supply chain and ingredient integrity, says Sharon Zackfia, Partner and Group Head-Consumer at William Blair & Company, L.L.C.

“I still think Chipotle has a fairly open-ended growth path ahead of it, with the opportunity to still triple its U.S. restaurant base. And, maybe most important for near-term sentiment, it seems likely that Chipotle will take a price increase this summer. Chipotle historically has seldom seen any price resistance from consumers,” Zackfia said. “A price increase would bolster margins and same-store sales trends, which should help earnings growth accelerate into the back half of 2013.”

Chipotle‘s growth strategy also includes catering, which has a higher profit margin than its restaurant burrito business. Zackfia says catering is a way for CMG to increase sales in a way that doesn’t affect the front line, and which may put analysts’ worries about throughput maximum down.

“Catering for Chipotle is pretty much a back-of-house operation, whereby Chipotle will prepare chafing dishes of ingredients and customers will then, at home or at the office, customize their burritos or tacos themselves, because customization is a key element of Chipotle‘s success,” Zackfia said. “In addition, catering is obviously going to be a high average ticket, which could help bolster unit-level productivity and same-store sales, so that’s a bit of a positive wildcard as it rolls out this year.”


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