Can Chipotle Put Out Taco Bell's Fire?

Yum! Brands (NYSE: YUM  ) is heating things up again. Earlier this week, its Taco Bell chain announced that the latest entry in its wildly successful Doritos Locos Tacos line will take a spicy turn.

Fiery Doritos Locos Tacos will be available next Thursday, though Taco Bell is alerting Facebook fans that they can secure the latest Doritos-dusted tacos as early as Monday.

There was no shortage of cynics when Taco Bell introduced Locos Tacos last year. Late-night comedy shows pounced on the tacos with shells flavored to taste like Nacho Cheese Doritos. However, it was a resounding success. Comps at Taco Bell soared a scintillating 12% during the quarter that they were introduced. Taco Bell has now sold 600 million of those crunchy concoctions between the original Nacho Cheese, and the Cool Ranch flavor that was added earlier this year.

This brings us to Chipotle Mexican Grill (NYSE: CMG  ) . Comparing Taco Bell to Chipotle may be heresy in some circles, but surely some of those 600 million Locos Tacos purchases have come at the expense of a Chipotle order.

Chipotle has been growing same-store sales at a faster clip than Taco Bell for years, but that streak ended last year. Taco Bell's 8% spike in state-side comps edged out the 7% uptick at Chipotle.

Taco Bell also had the lead through the first half of this year, posting gains of 6% and 3% through the first two quarters, respectively. Chipotle's seen same-store sales climb 3.4% through the first six months of the year. Yes, Chipotle did overtake the growth baton this past quarter, but this was also Taco Bell pitted against last year's 13% surge when the Locos Tacos line was introduced.

Chipotle fans will argue that Taco Bell can be ignored, but clearly, there is a cult building around these Doritos-flavored tacos. It's also hard to dismiss Taco Bell after last year's Cantina Bell line of enhanced menu items. Sure, Taco Bell is still way behind Chipotle in many ways, but it's spinning the flavor wheel at a frenetic enough pace where it will have hits from time to time.

Chipotle doesn't play that game. It prefers to stick to its simple and consistent offerings of high-quality eats.

However, when your stock is trading for more than 30 times next year's earnings, and you're growing at a much slower rate than that suggests, there is little room for error.

Fiery Doritos Locos Tacos isn't going to move the needle the way that the original Nacho Cheese Locos Tacos did last year, but Yum! Brands and Doritos parent PepsiCo (NYSE: PEP  ) are just getting started.

PepsiCo markets 123 different Doritos flavors worldwide. We still have 120 more to go before Taco Bell exhausts the potential for new offerings.

Source: Taco Bell via its official Facebook fan page.

Yum! Brands and Chipotle are globetrotters
Profiting from our increasingly global economy can be as easy as investing in your own backyard. The Motley Fool's free report, "3 American Companies Set to Dominate the World," shows you how. Click here to get your free copy before it's gone.


Read/Post Comments (4) | Recommend This Article (3)

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 August 16, 2013, at 7:13 PM, cmalek wrote:

    What fires needs to be put out? In spite of the new tacos success, YUM has been underperforming the S&P. CMG ain't got nothin' to worry about from YUM.

  • Report this Comment On August 17, 2013, at 1:37 AM, enginear wrote:

    Agree with cmalek... further, although they both fall under the 'fast food' moniker, they are really different parts of the market. Taco bell is where you take the kids. Adults that want something good, and healthy to eat for a real (fast) meal go to CMG

  • Report this Comment On August 23, 2013, at 1:14 PM, joemas wrote:

    While driving to FLA we stopped at TACO Bell. We were looking for something other than a burger. Fiesta Taco Salad-Chicken in a crispy tortilla bowl filled with marinated all-white-meat chicken, and loaded with chunky beans, real cheddar cheese, premium Latin rice, crisp shredded lettuce, diced ripe tomatoes, red tortilla strips, reduced-fat sour cream and served with citrus salsa on the side. . It seemed to be a comparable dish to CMG for a buck or more less. On the way back we stopped at another TB for the same thing but no tortilla bowl and everything seemed to be a day old. Not a big fan of CMG or Fast Food in general, but a national chain is expected to meet the sameness test. TB in this case does not challenge CMG. For what its worth...

  • Report this Comment On August 23, 2013, at 5:10 PM, cmalek wrote:

    @joemas:

    Not to defend Taco Bell but that is not unusual in chain restaurants. I've had experiences similar to yours at Ruby Tuesday, Boston Market, Outback Steakhouse, Micky D's, IHOP and others. Individual locations are not representative of the entire chain, either for good or bad. If you have the same experience in 5, 6, or more locations across the region/country then a pattern may be emerging.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2597658, ~/Articles/ArticleHandler.aspx, 9/2/2014 7:56:20 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement