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Chipotle Joins the Asian Invasion

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Should Asian fast-casual operators start shaking behind their hibachis? Chipotle (NYSE: CMG  ) founder Steve Ells is a man on a mission:  to prove that the philosophy behind his burritos can work in Asian fast-casual, too. There's only one concept restaurant now, but its success could transform the company's future and might even change the way you think about Asian food.

You like Thai?
This foray into the Far East makes a lot of business sense, but Chipotle is keeping the new concept restaurant, dubbed ShopHouse, very low-key. There's currently no marketing blitz planned for its single Washington, D.C., location, and customers won't be told of the restaurant's connection to the burrito chain. There's not yet even a functional website. Chipotle management's current focus is still its flagship brand, and it's easy to see why, given the explosion of Mexican fast-casual chains over the past decade.

Sources: SEC filings and news releases.

Chipotle's the market leader for Mexican fast-casual, but it faces stiff competition from the likes of Qdoba -- owned by Jack in the Box (Nasdaq: JACK  ) -- and Baja Fresh. Recent upstart Moe's Southwest Grill has grown nearly as quickly as Chipotle on a yearly basis, which is impressive considering that it's been in existence little more than half as long and has never had McDonald's (NYSE: MCD  ) deep pockets to reach into, as Chipotle originally did.

On the other hand, the Asian fast-casual scene is dominated by privately held Panda Express and its predominantly Chinese menu, with P.F. Chang's (Nasdaq: PFCB  ) similarly styled Pei Wei Asian Diner a distant second. That leaves a lot of room for a Thai-dyed chain to make its mark, which seems to be Ells' plan – he's taken his cues from Southeast Asia, right down to a two-story building design that evokes urban shops of the region.

Give me one with everything
I enjoy Chipotle as much as the next guy. So do many investors, which is why the company's sporting a P/E vastly higher than its former parent, not to mention most of its competitors. That's largely based on Chipotle's ability to swiftly sling burritos to an insatiable public -- its best locations can move through 300 customers an hour, which helps push the company to an industry-leading profit margin. You can get any of the items available in any combination you'd like, even including the carnivore special, a bowlful of all four of Chipotle's available meat offerings.

And there's one of the questions the new concept faces. It's not so much that ShopHouse is yet another Asian chain as that Chipotle's ability to create mix-and-match meals is untested in a style that most consumers don't connect with a mix-and-match approach. Tacos, burritos, quesadillas, and bowls full of meat all can be built out of the same basic ingredients. Can the same rapid assembly-line process -- sustainably sourced local ingredients and all -- be applied to Asian food that tends to have more nuanced flavors and more varied cooking processes? It will be a tricky proposition to get right, but if it works, then the company might have just found a way to double its growth rate in the coming years.

Keep your eye on how these companies handle Chipotle's next big thing by adding them to your Watchlist:

Chipotle's big in America, but there's one surprising chain in Latin America that could turn fast food on its head and make investors very rich. It just had an IPO this year, so find out more today in this free report, before everyone else hears about it!

Fool contributor Alex Planes holds one burrito with everything, but he has no financial stake in any company mentioned here. The Motley Fool owns shares of Chipotle Mexican Grill. Motley Fool newsletter services have recommended buying shares of Chipotle Mexican Grill and McDonald's and creating a iron condor position in Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 17, 2011, at 9:27 PM, liseetsa wrote:

    We love Chipotle. Simple, fresh menu done well. Plus they are one of the few "peanut-free" restaurants where we can eat and not worry about killing our child. We let him eat the chips and tortillas but nothing else yet. Still, we must be careful what we eat to avoid giving him a reaction. 1 in 12 under 18 are now deathly allergic to food--mostly peanut. Before he suddenly became anaphylactic at age 4, we had never heard of such a thing and ate Thai, Chinese, Mexican, Indian--without a care. So as long as Chipotle does not start using peanut oil and/or blending asian menu ingredients making it impossible for the 6+million folks, and their families, schools, relatives and friends with peanut allergies unable to eat there, it's an amazing idea. I think if they streamlined an asian restaurant, and indian could be next, in the same fashion as Chipotle, organic in addition--setting an example for all business models, how can they not succeed. People want to know their food is fresh, non-gmo, non-pesticide and exactly what is in it due to the food allergy epidemic. And they are willing to pay more to get it. Deliver a respectable menu and the return will be profound.

  • Report this Comment On September 19, 2011, at 10:59 AM, XMFBiggles wrote:

    I've been informed that the ShopHouse website is accessible now, so please accept my apologies for this bit of outdated information.

    @ liseetsa, that's something to consider, certainly. The ShopHouse restaurant site has peanuts as one possible addition to meals, which might make the place a bad choice for those with peanut allergies.

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