Will Chipotle Mexican Grill Redefine How We Eat Pizza?

Now that Chipotle Mexican Grill (NYSE: CMG  ) has announced it bought an interest in a tiny pizza chain called Pizzeria Locale comes the burning question. Can Chipotle (NYSE: CMG  ) really make a pizza with integrity that will satisfy those of us still greasily clinging to our mainstay delivery pizzas?

Further, investors want to know if Chipotle can realistically compete against established chains like Domino's Pizza (NYSE: DPZ  ) , Papa John's, and Pizza Hut, owned by Yum! Brands (NYSE: YUM  ) .

Why pizza for Chipotle?
Pizza is popular. Americans eat 350 slices of pizza every second and there are 65,000-plus pizza restaurants in the US as of 2012. That equals one pizza joint for every 4,615 Americans, making for a $40 billion business annually.

Wow, you think, that doesn't seem like nearly enough pizza! Franchise industry trends show that pizza is the No. 1 dinner choice for Americans of whom 93% eat at least one pizza monthly.

With a 'make your own' concept eerily similar to that of Seinfeld's Cosmo Kramer, Pizzeria Locale may be one pizza concept that hasn't been explored. It's also similar to the choose-your-own concept at Chipotle. As Cosmo tells Jerry," I'm telling you guys, this pizza thing is really gonna happen! People really want to make their own pizza pie!"

Source: YouTube

Why now?
So, let's assume the market isn't saturated. This venture far afield from Chipotle's expertise seems to signal either boredom with a smoothly running business model or a desperate search for new areas of growth (less likely).

Steve Ells, Chipotle founder and classically trained chef (Culinary Institute of America), has overseen the tremendous growth of brainchild Chipotle for more than two decades. Likely, Ells wants to prove his business model of sustainable healthy food and the company's efficiency works for other cuisines. "Throughput," an industry term for how fast you move the customers through, reaches as high as 300 per hour at the best-performing Chipotles. 

It could be as simple as he's bored with burritos.It was curious enough when Chipotle started its chain of Asian-fusion themed ShopHouse. Jennifer 8 Lee, author of The NY Times best-seller about the Chinese restaurant industry, The Fortune Cookie Chronicles, says  some 40,000  Chinese restaurants in the US outnumber the US Mickey D's, Burger Kings, KFC's, and Wendy's combined. But with Chipotle's Pan-Asian tweak ShopHouse was filling a desire for less egg rolls and more authenticity and variety.

Why compete?
Four chains control 36.8% of the US pizza market: Pizza Hut, Domino's, Papa John's, and Little Caesar's (privately held).

Domino's may be the most serious competition, with almost one-quarter of pizza delivery share in the US. In 2009 it ran a very public and unusual ad campaign, admitting its pizzas tasted like cardboard and dropping its 49 year-old pizza recipe. Domino's most recently has been touting its mandate to 'slow down' with its handmade pan pizza made with fresh, never frozen dough.

source: Domino's Investor Presentation at Telsey Advisory Group

Not only is Chipotle competing against these pizza titans on taste and freshness but also on business model, with 96% of Domino's locations owned by franchisees as opposed to the Chipotle company-owned model.

And Domino's is also rolling out a new store design, incorporating a Pizza Theater theme, much like Krispy Kreme's Doughnut Theater. The first debuted in Baton Rouge, La. in November. Overall, Domino's has raised the bar and this fall won The Huffington Post Pizza Deathmatch for best chain pizza.

source:The Huffington Post

Coming in second was Pizza Hut. Yum! Brands' US Pizza Huts have also been the target of a redesign focus, with 150 new Pizza Huts in the US. It might surprise you to know there are 7,756 Pizza Huts to 5,595 Taco Bells and 4,618 KFC's in the US. Yum! only owns and operates 26% of Pizza Huts.

source:pizzahutfranchise.com

Sustainable pepperoni?
The main challenge will be retraining Americans to appreciate sustainable- sourced ingredients in pizza. Sourcing ingredients with integrity on a large enough scale may be a problem. Pepperoni, for example, is the most popular US pizza topping.

Luckily for Chipotle, it has more experience in this area than anyone. As Ells told Fortune when he was first opening ShopHouse, "Chipotle succeeds not because of the burritos. It works because of our system: fresh, local, sustainable ingredients, cooked with classic methods in an open kitchen where the customer can see everything, and served in a pleasing environment."

Pizza probably won't be a needle-mover for Chipotle for years. Its ShopHouse concept has only expanded to four locations in two years. Whether Ells can pull off the same magic for pizza is moot. At the very least, it will drive its rivals to up the game yet again just as Taco Bell offered a fresher Cantina Bell menu to compete with Chipotle. The real winner of the war will be pizza lovers and commodity mozzarella suppliers. 

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  • Report this Comment On December 30, 2013, at 11:53 AM, LungsOfSteel wrote:

    There's several pizza joints following the business model. Only makes sense for Chipotle to up the ante. While not "Real" pizza IMHO, perhaps it'll up the sensibility of other Americans who think Domino's (and Taco Bell) constitute the median.

  • Report this Comment On December 30, 2013, at 3:03 PM, Snaffew wrote:

    Ridiculous assumption that Chipotle will redefine pizza...the only thing they will redefine with this venture is their balance sheet...it will be as red as the sauce on their tasteless pie. Each and every town across America has multiple Ma and Pa pizza shops along with the larger competitors and everyone has their favorite. CMG will fail miserably on this venture to try and secure more revenue. This tells me that they have maxed out their burrito sales and are trying anything in order to add more dollars to the bottom line. CMG is just another overhyped flash in the pan chain that the media has played out far more than the true value of the company. CMG will be BK in 7 years imo.

  • Report this Comment On January 02, 2014, at 8:16 PM, uonorthmemories wrote:

    Interesting Letter to Chipotle…

    Shame on you…do the right thing. ~~~

    No CMG during the boycotte and until you do the right thing. ~~~ANNOUNCING OUR CHIPOTLE ACCOUNTABILITY TOUR 2014

    A Letter To:

    Mark Crumpacker, Chief Marketing & Development Officer of Chipotle Mexican Grill, Inc. (via Betsy Hobson) and,

    Arianna Huffington, President, Editor-in Chief of The Huffington Post Media Group

    RE: Your use of my company name and trademark.

    Dear Mark and Arianna:

    I’m just letting you know that the Chipotle Accountability Tour is underway! The weather in the northeast has slowed us just a bit, however we started in Grand Rapids, Michigan and are now in Chicago. We’ll visit at least 6 more states in the next 10 days. My team is solid. Stella, my 13 year-old, is our official photographer. When we pulled into our first Chipotle, she let her eyes go to work, framing the photo, looking for the perfect light. Connor, my 9 year-old will be passing out handouts to passersby and Chipotle employees. We had a very friendly exchange with the restaurant manager in Grand Rapids which really set the tone. The kids are feeling much better about skipping our planned trip to Disney World. Getting to skip a week of school helped ease that pain a bit too!

    While we’re excited on the one hand, we are also focused on just how serious this issue is to our family. The corporate trampling of small businesses is an unfortunate reality in this free market world of ours. My kids are well aware that neither the government nor trademark law can protect you from powerful entities that are not fundamentally ethical. Yet, we have not lost hope that you will do the right thing and pool your immense corporate resources into generating a new and creative venture that is unique to you, rather than copying someone’s work.

    In your company’s 2012 annual report, Mark, I’m pleased to see that it is stated, “..if any third party misappropriates or infringes on our intellectual property, either in print or on the internet, the value of our brands may be harmed, which could have a material adverse effect on our business…” a

    Your report also clarify’s that there are risks in trampling small farmer/entrepreneurs like me when it states: “We may also encounter claims from prior users of similar intellectual property in areas where we operate or intend to conduct operations. This could harm our image, brand or competitive position and cause us to incur significant penalties and costs.”

    I would suggest you read it again with my situation in mind. There’s lot of information in there that would help you understand why I have to take your use of my company name, Food for Thought, very seriously.

    We’ll be launching a new web page (www.chipotlewatch.com) later today and our Social Media campaign will follow us along the journey. We should be up to full speed by tomorrow. The offer is still open for you to join me. It’s a bit challenging talking about corporate ethics when the corporations don’t participate. Fortunately we’re finding lots of other people that want to talk about it. Here’s the rough itinerary:

    January 2-3 – Chicago, IL

    January 3-4 – South Bend, IN

    January 4 – Toledo, OH

    January 5 – Pittsburgh, PA

    January 6 – Baltimore, MA

    January 7 – Arlington, VA

    January 7-10 – Washington DC – Photo opps galore!

    January 9th-12th return home – picketing more on the way

    This is just our first stage. I’m planning another for the Spring and also hope to picket a few in London on my way to and from The Congo in February.

    I don’t mean to leave you out entirely, Arianna. “The Chipotle Huffington Post Accountability Tour” is just a mouth full. I’m sure at some point I’ll find time to come picket your offices. Perhaps when I join my daughter’s choir on their visit to New York this Spring? She’s begging me to go this week while we’re in the east, but I don’t think we can fit it in.

    I’ll be in touch soon.

    With kind regards,

    Timothy Fitzgerald Young

    President/Founder

    Food For Thought, Inc.

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