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Can Taco Bell Copy Chipotle's Secret Sauce?

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Yum! Brands' (NYSE: YUM  ) Taco Bell and Chipotle (NYSE: CMG  ) both offer quick-serve Mexican fare, but many of us probably find the two restaurant concepts' vittles fairly different. However, Taco Bell is trying to bridge the gap by offering more gourmet fast food on its menu.

These new Taco Bell items will be identified by the name "Cantina Bell." Some Cantina Bell ingredients ring a bell for Chipotle: cilantro rice, black beans, marinated chicken, corn salsa, and pico de gallo. Even more Chipotle-like, Taco Bell will serve up burritos and bowls, with the chicken or veggie versions priced at $4.79 and the steak version available for $4.99.

Both companies downplayed the rivalry. Taco Bell said it's responding to customer tastes; apparently consumers aren't as into the wham-bam of fast food anymore and are now looking for "new tastes and textures," a Taco Bell spokesman told MSNBC.

Still, the fact that Chipotle has nibbled at some of Taco Bell's market-share dominance probably has something to do with this menu addition. Although Taco Bell dominates about half the market for "limited serve Mexican" fare and Chipotle only has 16.4%, Chipotle has been whittling away at Taco Bell's share with just a fraction of the number of restaurants Taco Bell has. (Taco Bell has about 6,000 restaurants dotting the landscape, while Chipotle only has about 1,200.)

Yum! Brands, which also owns Pizza Hut and KFC, belongs solidly in the fast-food companies category like McDonald's (NYSE: MCD  ) , while the Chipotle brand sets itself apart from that category. (Granted, at one point, McDonald's owned a stake in Chipotle.)

It'll be difficult for Taco Bell to shed its downmarket fast-food image, even if it spruces up its menu items. Plus, Chipotle's secret sauce includes ingredients that will be very difficult for Taco Bell to replicate, like Chipotle's "Food With Integrity" mission, which means Chipotle tries to put as many natural, sustainable, antibiotic-free ingredients in its foods as possible.

A Chipotle spokesman told MSNBC, "What makes Chipotle work is more ingredients from sustainable sources with traditional cooking methods in a comfortable environment. There's a lot of soul behind the menu. ... It's encouraging to see restaurants like Taco Bell improve what they're offering."

Indeed, Taco Bell's move brings to mind when conventional grocers like Wal-Mart (NYSE: WMT  ) began stocking organic merchandise. It meant companies like Whole Foods Market (Nasdaq: WFM  ) had been ahead of the curve, and increasing numbers of consumers were becoming interested in putting better or more sustainably sourced ingredients in their bodies.

Chipotle's early drive to do quick food better is one of the reasons it landed in the real-money stock portfolio I'm managing for (Whole Foods Market is in there, too.) Innovative, responsible companies lead the way to better business practices, and Chipotle's carved out a niche that Taco Bell only wishes it could emulate.

Do you think Yum! Brands is a better buy than Chipotle? Do you think its new Cantina Bell offerings will be a hit? Let me know in the comments box below.

For extra reading, our analysts have identified Yum! Brands and McDonald's as two of 3 American Companies Set to Dominate the World. Find out why by grabbing your own copy of this absolutely free report.

Alyce Lomax owns shares of Whole Foods Market. The Motley Fool owns shares of Chipotle Mexican Grill and Whole Foods Market. Motley Fool newsletter services have recommended buying shares of McDonald's, Chipotle Mexican Grill, and Whole Foods Market, creating a bear put spread position in Chipotle Mexican Grill, and creating a diagonal call position in Wal-Mart Stores. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

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 June 09, 2012, at 8:19 PM, stever1245 wrote:

    This is going to really put the hurts on Chipotle. If you can get the same burrito for 1/2 the price people will go to Taco Bell. Alot of people I know have stopped going to Chipotle because they keep cutting down on portion sizes and charging more.

  • Report this Comment On June 10, 2012, at 11:43 AM, assisgnmeaname wrote:

    Even if there is not much attrition from CMG to TB, CMG will have to forgo price increases and rethink their growth into secondary and down-scale markets...with it's priced-to-perfection multiple, and costs of defending against the SEC and Justice Department investigations, I would rather buy YUM (or most any restaurant stock) here.

  • Report this Comment On June 11, 2012, at 4:48 PM, Borbality wrote:

    I doubt the Cantina thing will make much of a dent.

    It's good when companies like Chipotle make junk food companies increase quality a bit, but these are vastly different markets.

    And it's funny, because at the same time Taco Bell is introducing this "cantina" thing, they're also market testing "Mountain Dew A.M." in central and southern California. I think this is some kind of Taco Bell-only creation.

    This is Mtn. Dew plus "orange juice." I'd bet it's not real OJ, either. Cantina burrito? Who are we trying to kid here?

    I think YUM is still a decent stock because of international growth, but I've sold my gains from the last couple of years and am just keeping a small position open. I tend to avoid high-P/E growth stocks and figure I missed the boat on Chipotle.

  • Report this Comment On June 12, 2012, at 2:11 AM, BertKP wrote:

    Yum is not a Taco Bell story. The real story is Kentucky Fried Chicken in China where it even dominates over McDonalds.

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