1 Thing That Worries Me About Chipotle Mexican Grill

While Chipotle Mexican Grill continues to dazzle the market with impressive growth, it remains to be seen whether the burrito-themed chain can export its success to China.

Apr 26, 2014 at 12:30PM


There's no doubt that Chipotle Mexican Grill (NYSE:CMG) is one of the biggest success stories in the restaurant industry over the past two decades. At the same time, however, there's one reason to wonder whether it can live up to its true potential. That reason is China.

Tapping into the Chinese consumer has become the highest priority for any restaurant company with global ambitions. McDonald's (NYSE:MCD) is opening nearly a restaurant a day in the East Asian country. And Yum! Brands (NYSE:YUM) -- the proprietor of the KFC, Pizza Hut, and Taco Bell brands -- now generates more income in China than it does in the United States.

To only slightly overstate the case, China is both the Holy Grail and the fountain of youth all rolled into one for consumer-focused brands. With a population four times that of America's, a growing middle class, and government policies aimed at fueling domestic consumption, the sky is literally the limit for companies like Chipotle, McDonald's, and Yum! Brands.


However, despite Chipotle's success in the United States and fledgling operations in Europe, it remains to be seen whether its burrito-themed concept will resonate with Chinese consumers. It's worth noting, for instance, that Yum! Brands has had tremendous success with its KFC brand in China yet has gained absolutely no traction with Taco Bell.

The potential obstacles for Chipotle seem to be twofold. First, it's far from certain that the Chinese consumer will embrace Mexican cuisine enough to support an operation encompassing thousands of locations. According to former-China-based blogger Andy Madison, "among southern Chinese, who have long favored rice over bread, wrap-like items are not big sellers."

And second, Chipotle's fast-casual service model may not resonate in China to the same extent it has here. "Asian family dining is sharing communally; you have lots of people there," says James Fallows of The Atlantic. This calls into question both the burrito construct itself and the assembly line format pioneered by Chipotle.

As Madison noted in the same blog post:

Chipotle's appeal stateside rests largely in its simplicity. You order a burrito, you order a soda. They could sell other, higher markup items such as cookies, but they choose not to tamper with success. Chinese tend, when dining out, particularly when they're eating at a fancy place -- as Chipotle undoubtedly would be -- to order several items to be shared among the diners. Burritos are not at all conducive to sharing and naked tortilla chips would do little to make up for the shortfall.

Just to be clear, this isn't merely an academic debate for investors. Chipotle's stock trades for 48 times earnings. That's more than two and a half times the premium accorded McDonald's. To equalize this, Chipotle will at the very least have to double in unit count, while continuing to increase same-store sales at an impressive click.

Can it do the former without China? That remains to be seen, but it's a question that should be at the forefront of every Chipotle shareholder's mind.

3 stocks poised to make investors millions
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multibagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill and McDonald's. Try any of our Foolish newsletter services free for 30 days. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers