Chipotle: The McDonald’s of Burritos?

Chipotle owes its success to McDonald's. Will the burrito giant dominate the fast-casual food industry as McDonald's has reigned over fast food for the past 75 years?

Feb 19, 2014 at 2:35PM

Is Chipotle Mexican Grill (NYSE:CMG) the McDonald's (NYSE:MCD) of burritos? Not yet -- but the "original gangster of fast-casual food" may be well on its way to achieving the ubiquity and renown of Mickey D's. Depending on if and how fast this phenomenon occurs, Chipotle investors are either sitting on a barbacoa cash cow or are already suffering from decreasing returns to steak.

Chipotle's rich father
McDonald's was actually an early investor in Chipotle and cashed out big time when the burrito giant held its tasty 2006 IPO. Mickey D's must have seen glimpses of itself in the up-and-coming Chipotle restaurant chain -- perhaps similar assembly line efficiency and branding excellence that brought McDonald's untold scale and profits for almost 75 years.

These days, McDonald's doesn't seem so spry. Profits seem unlikely to grow much fatter -- owning 34,000 restaurants worldwide has that effect --  and once-loyal customers are beginning to question whether McDonald's is feeding them well or just cheaply. Indeed, McDonald's stock seems stuck in a rut, with a one-year change of approximately -0.1%.

McDonald's hipster son
Enter Chipotle, McDonald's hip offspring. Far from a chip off the old block, Chipotle dresses its 1,500 restaurants in trendy red paints and sheet-metal walls that blare upbeat songs. The burrito chain's focus on offering fresh, filling, healthy menu items for $7-$10 seems to be paying off: Chipotle's fourth-quarter same-store sales rose 9.3% (McDonald's' equivalent sales fell 1.4%).

McDonald's can't compete with Chipotle on menu health: salads comprise a wilted 2%-3% of the Golden Arches' revenue, while most every Chipotle item has fresh lettuce or veggies. If the market seeks health, and customers are willing to pay a $2-$4 premium over fast food for a higher-quality lunch, McDonald's global empire becomes at risk of crumbling slow like ancient Rome.

If Chipotle continues to grow and resemble McDonald's in scale, will it suffer the same fate?

Fast casual vs. fast food
Right now, Chipotle's riding a profitable fast-casual tsunami: customer traffic at fast-casual joints, an industry that Chipotle leads, rose a delicious 8% in 2013 (while fast food fell flat). Of course one day the fast-casual sector will also mature and decline, but Chipotle's taking future profits by the bullish horns by treading into innovative genres like Asian food and pizza.

Chipotle's Shophouse Southeast Asian Kitchen now sports six locations (in California, Washington, D.C., and Maryland) and could offer vibrant growth as Chipotle matures. Also on the horizon is potential growth brought about by Chipotle's December acquisition of Pizzeria Locale.

If Chipotle succeeds McDonald's as America's Don of Restaurants, its success will depend on finding, not fighting, inevitable market-altering trends and incorporating these into profit.

Put your money where your mouth is
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Glenn Singewald has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information