Taco Bell's Smearing Chipotle With Cool Ranch

Chipotle Mexican Grill (NYSE: CMG  ) is cool, but is Cool Ranch even cooler?

Yum! Brands (NYSE: YUM  ) is introducing new tacos today featuring shells with Doritos Cool Ranch seasoning.

The latest entry to Taco Bell's Doritos Locos Tacos are officially hitting the market tomorrow, but Yum! Brands surprised followers on Facebook and Twitter by alerting them that the new menu item is available today.

A year ago Chipotle investors would've laughed off any attack from Taco Bell. Isn't that where young penny-pinchers go to load up in the wee hours? How dare anyone compare Chipotle's "food with integrity" with the slop being spooned out at Taco Bell?

However, the success last year of the original Doritos Locos Tacos and the slightly more upscale Cantina Bell line appears to be having some kind of effect on Chipotle.

Comps at Taco Bell popped 7% during the third quarter, the first period that the Cantina Bell and Doritos Locos Tacos were available for the entire quarter. Chipotle clocked in with same-store sales growth of just 4.8%.

Most chains would love to see a typical store ringing up 4.8% more in sales than it did a year earlier, but Chipotle investors were used to more growth than that. Things only got worse when Chipotle's comps only rose 3.8% during the fourth quarter.

Can Chipotle grow faster if Taco Bell has another hit on its hands?

In theory, it shouldn't play out that way. Chipotle is fast casual. Taco Bell is fast food. Taco Bell competes with burger joints armed with similar value menus and drive-thru windows. Chipotle's higher-caliber food makes it more likely to lose a customer to rival fast casual darling Panera Bread before it comes up short against Taco Bell.

However, the novelty of the new Cool Ranch Doritos Locos Tacos may wind up costing both Chipotle and Panera in the near term.

There may also be a more pronounced move on Chipotle's bottom line. Revenue grew at a reasonable 17% clip in Chipotle's latest quarter, but income only climbed 7% for the period. Chipotle argues that it didn't raise prices quickly enough as commodity costs inched higher, but could it also be that Chipotle was afraid to tweak its menu with higher price points given Taco Bell's thriving at the low end?

We may never know. However, Chipotle better hope that it doesn't post disappointing comps in the coming quarters. Given the stock's lofty valuation multiples, it better prove that it's the one that's cooler than Cool Ranch.

Chipotle has been on an absolute tear since the company went public in 2006. Unfortunately, 2012 hasn't been kind to Chipotle's stock, as investors question whether its growth has come to an end. Fool analyst Jason Moser's new premium research report analyzes the burrito maker's situation and answers the question investors are asking: Can Chipotle still grow? If you own or are considering owning shares in Chipotle, you'll want to click here now and get started! 


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  • Report this Comment On March 06, 2013, at 3:29 PM, MaineFarmer wrote:

    I doubt there is correlation between the two numbers...I don't think many Chipotle customers would be caught dead in Taco Bell, and I don't think most Taco Bell customers can even pronounce Chipotle.

  • Report this Comment On March 06, 2013, at 4:24 PM, FoolMe123Times wrote:

    Taco Bell is drive through. Chipotle can't compete. They will never have the same revenues.

    Taco Bell answered Chipotle with their Cantina Burritio.

  • Report this Comment On March 06, 2013, at 4:30 PM, martinbay wrote:

    In term of food quality, Taco Bell cannot compete with Chipotle. Assuming food quality is equal, which it is not, you'd need to spend about $15 at Taco Bell to get the equivalent net weight of one $7 Chipotle chicken burrito.

    Chipotle serves real guacamole. Taco Bell's version of guacamole is a green liquid that appears to be 'cut' with Mayo and other fillers. Disgusting and cheap.

  • Report this Comment On March 06, 2013, at 5:33 PM, jberlat wrote:

    Taco Bell and Chipotle is like comparing McDonald's/Burger King to Five Guys/InNout Burger. Totally different demographics.

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