Can Chipotle Do for Pizza What It Did for the Burrito?

The holy grail of restaurant concepts is to deliver pizza the same way Chipotle Mexican Grill (NYSE: CMG  ) delivers a burrito bowl. After all, more Americans eat pizza than burritos. Who wouldn't want to walk into a restaurant, pick out their pizza, customize it, and then watch it get made in a few quick minutes? The restaurant chain that can pull it off will hit restaurant gold and profits galore.

Chipotle is not alone
When I first touched on the subject of a Chipotle-like concept for pizza, it looked like Buffalo Wild Wings (NASDAQ: BWLD  ) was going to beat Chipotle to the punch. Chipotle was focused on its ShopHouse SouthEast Asian Kitchens concept, while Buffalo Wild Wings had invested in and became a franchisee of PizzaRev, as described in "Will New Concepts From Chipotle and Buffalo Wild Wings Take Off?". PizzaRev is a California-based pizza chain with Buffalo Wild Wings as a minority shareholder and Buffalo Wild Wings CEO Sally Smith serving on the PizzaRev board.

The PizzaRev concepts starts with fresh dough as soon as you walk in the door. You can choose the type of pizza you want, and it comes with unlimited toppings. The hard part is getting the pizza to cook fast enough. PizzaRev thinks it has the problem figured out with an oven that cooks the pizzas at 900 degrees Fahrenheit. Pizzas are done in less than three minutes, and all for less than $8. Sounds like a pretty good deal to me.

What Chipotle plans on doing
Chipotle is partnering with Pizzeria Locale in its hometown of Denver. Chipotle chairman and CEO Steve Ells has been a customer of the original Pizzeria Locale for years. As the company tinkered with the concept, Steve Ells said, "When I walked in, I thought, what if they did this in a Chipotle format?" Thus, the concept was born.

Chipotle is working with Pizzeria Locale on how to expand the concept. Management of Pizzeria Locale has been touring Chipotle locations across the country to get an idea of how these restaurants source ingredients, build a team of employees, and replicate the concept. Two more Denver locations are likely within the next year. Chipotle is an investor in Pizzeria Locale and has the option to become the majority owner down the road.

What else is Chipotle working on?
Chipotle is looking to put a little something else in your bowl at ShopHouse SouthEast Asian Kitchens. Instead of a burrito bowl, you'll get the flavors inspired by Southeast Asia in the form or rice or noodles. The same concept applies. You walk in and choose what you want in your bowl. Chipotle just opened its second California location in October.

According to Chipotle CEO Steve Ells, "I don't think there is a kind of cuisine that wouldn't fit into the Chipotle format." That sounds like Chipotle is looking at a lot more than just pizza or Asian-inspired dishes, which is great news for Chipotle and its shareholders.

How about Buffalo Wild Wings?
Buffalo Wild Wings just made a huge move in "Coca-Cola's Loss Is PepsiCo's Gain at Buffalo Wild Wings." Buffalo Wild Wings will now serve PepsiCo products at all of its locations. The real reason behind this is to get access to PepsiCo's snack division and its Frito-Lay products. The thought of Doritos-flavored chicken wings obviously appealed to executives at Buffalo Wild Wings, and it appeals to this Fool as well.

How do shares compare?
Both Chipotle and Buffalo Wild Wings look like good investments going forward. This is driven by the growth potential for both chains, especially considering that neither chain has touched on international expansion yet. But for now, both chains are focused on growing their brands here in the U.S.

Shares of Chipotle are trading at 39 times next year's earnings. The stock has risen more than 75% this year. The company has a clean balance sheet with more than $532 million in cash to finance its growth plans. In the third quarter, comparable sales increased 6.2%.

Buffalo Wild Wings trades at 30 times next year's earnings. Shares have outperformed Chipotle this year after rising more than 97%. Buffalo Wild Wings also has no debt, but has only $43 million in cash to finance its growth plans. It's certainly going to need the cash as it plans on opening another 1,700 locations in the next 10 years.

Foolish assessment
I see pizza as the next frontier in the fast-casual-dining segment. More Americans are looking for better quality food, but not fast food and not sit down and order, either. The Chipotle concept certainly appeals to most Americans, and that's why it remains one of our favorite places to dine out. It's too early to tell if Chipotle's venture with Pizzeria Locale will pan out or not, but if it can be done, Chipotle is certainly the company that can deliver good quality pizza in a few minutes or less.

But don't tell that to Buffalo Wild Wings, for it sees its PizzaRev concept as being one step ahead with several locations already open. Let the pizza wars begin!


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  • Report this Comment On December 29, 2013, at 10:35 AM, Nealrawls wrote:

    It's bound to be a success. First, Colorado legalized marijuana and now Chipotle is selling pizza and burritos. That combination can't miss.

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