Yum! Brands vs. Chipotle Mexican Grill

One company is likely to see international growth and has established a strong social media presence. The other is still in its early stages of growth and targets today’s consumer well. Which should investors consider first?

Jan 25, 2014 at 12:00PM

Advertising Age named Yum! Brands' (NYSE:YUM) Taco Bell the Marketer of the Year for 2013. This was primarily driven by its new Cantina Bell Menu (created by Chef Lorena Garcia) and the Doritos Locos Tacos (made with real Doritos chips). Yum! Brands needed these innovations after its misstep in China with its KFC brand, pertaining to food safety questions regarding tainted chicken (containing high levels of antibiotics). KFC has since cut 1,000 suppliers from its supplier network in China.

Yum! Brands expects a rebound for China KFC. Longer-term, the company expects India and China to help drive growth. China's current consumer class is estimated at 300 million people. This number is projected to double by 2020. If this comes to fruition, then Yum! Brands wants to be there, helping to feed the growing consumer class along the way. Domestically, Yum! Brands aims for profitable growth, primarily driven by comps at Taco Bell restaurants.

It's clear that Yum! Brands stands to benefit from consumer growth trends in China and India. However, there are several reasons why Chipotle Mexican Grill (NYSE:CMG) should offer more long-term investment potential.

Food with integrity
Chipotle isn't a global brand, but that's a good sign, meaning that future growth potential is still very high. And based on the company's top-line growth over the past decade, Chipotle doesn't need to rush into the global market just yet. Consider Chipotle's top-line growth over the past decade compared to Yum! Brands' and McDonald's:

YUM Revenue (TTM) Chart

Yum! Brands revenue (trailing-12 months) data by YCharts.

Any company operating in this space has the ultimate goal of becoming the next McDonald's in size and brand strength. Chipotle might not be the next McDonald's, but it can be the next Yum! Brands. In other words, it has an opportunity to grow three different brands (or more), making it highly diversified and targeting different consumers. Based on health-conscious consumer trends, it could become an even better version of Yum! Brands. 

Yum! Brands offers Taco Bell, KFC, and Pizza Hut -- not exactly the healthiest of options. There is much debate over whether or not Chipotle is a healthy place to eat, but it comes down to what you order. What's more important is perception. Based on Chipotle's offering of "food with integrity" -- finding the best ingredients raised with respect for the animals, farmers, and environment -- the company is perceived in a positive light.

Chipotle also has a high-growth-potential brand with ShopHouse Southeast Asian Kitchen, with food that's gluten-free and dairy-free. And then there's Pizzeria Locale, its newest brand. Pizzeria Locale wouldn't be the first stop for the health-conscious consumer, but it should drive large crowds thanks to its uniqueness, including interactive ordering, pizza cooked in less than two minutes, and red or white Italian wine on tap. Consumers love new concepts.

Getting back to Yum! Brands, one of its initiatives is to build brand strength via social media. That being the case, let's see how Yum! Brands and Chipotle score for popularity on Facebook and Twitter. Keep in mind that Yum! Brands is a $30.3 billion company, and Chipotle is a $15.7 billion company. Therefore, Yum! Brands should have a much larger social media presence, given that it has more available capital to spend on marketing. 

Social media exposure
Yum! Brands establishes its Facebook presence by brand. KFC, Taco Bell, and Pizza Hut pages have 7 million, 10 million, and 11 million Likes, respectively, for a total of 28 million. Comparatively, Chipotle's Facebook page has 2.1 million Likes. Therefore, Yum! Brands is more impressive in this regard, which should be expected given the brand strengths of KFC, Taco Bell, and Pizza Hut.  

A similar picture plays out on Twitter. For Yum! Brands, KFC, Taco Bell, and Pizza Hut have 423,000, 987,000, and 705,000 followers, totaling 2.1 million. Chipotle only has 298,000 followers, giving it much less opportunity to spread news about recent innovations and promotions or to market in general.  

The bottom line
Yum! Brands and Chipotle are likely to remain winners, but in different ways. Yum! Brands will see the majority of its growth internationally, and it's a much more mature company. Its strong social media presence will also give it immediate access to a large pool of potential customers, giving it the ability to drive those customers to its restaurants by offering promotions and new menu items.

Chipotle might not have as much social media exposure, but it's still in the early stages of growth. This doesn't just pertain to geographical expansion, but the offering of more brands. ShopHouse Southeast Asian Kitchen and Pizzeria Locale are still in their infant stages. If one of them can grow as Chipotle Mexican Grill did, then Chipotle will be twice the size it is now at some point down the road.

Though there are risks to investing in Chipotle, including the stock trading at a lofty 52 times earnings, it's likely to be a long-term winner. And it could be the next Yum! Brands, but better, since it will cater more to today's consumer. Please do your own research prior to making any investment decisions.  

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Fool contributor Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, Facebook, McDonald's, and Twitter. The Motley Fool owns shares of Chipotle Mexican Grill, Facebook, and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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