Relax, Chipotle Investors -- El Pollo Loco Is Not the Next Chipotle Mexican Grill

El Pollo Loco is a Mexican-themed chain that offers a healthier alternative to fast food, but investors in Chipotle Mexican Grill need not worry.

Jul 9, 2014 at 6:40PM
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Source: El Pollo Loco.

El Pollo Loco describes itself as "a differentiated and growing restaurant concept that specializes in fire-grilling citrus-marinated chicken in front of our customers" while also serving burritos, tacos, and the usual.  On June 24, the restaurant chain filed a registration statement with the intent of going public. The filing includes a host of information. While El Pollo Loco's fundamentals and stock could possibly resemble that of Chipotle Mexican Grill (NYSE:CMG), make no mistake about it -- the two companies differ greatly and do not compete as directly as you might think. 

Hot off the grill
Chipotle Mexican Grill is fast-casual while El Pollo Loco wants to be known as fast-casual quality but at quick-service pace.  Both have Mexican themes, but one of the most headline-grabbing things about Chipotle Mexican Grill is its ever-exploding same-store sales. Same-store sales are a key metric to watch over time to measure a brand's growing popularity.

Last quarter, Chipotle Mexican Grill grew same-store sales by 13.4%. This is on top of full-year same-store sales growth of 5.6% for 2013 and 7.1% for 2012.

While Chipotle Mexican Grill's numbers have been impressive, El Pollo Loco has been no slouch either. In fact, as you'll see in the chart below, El Pollo Loco's same-store sales growth rate surpassed that of Chipotle Mexican Grill in 2012 and 2013. And it's not working from a small number either.

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Same-store sales growth by quarter. Source:  El Pollo Loco.

Last year, the average El Pollo Loco did around $1.8 million in sales, which is a little bit below Chipotle Mexican Grill at $2.17 million, but still within the same league. Unit sales of $1.8 million happens to be a hair higher than what Chipotle Mexican Grill did just four years prior in 2009, so don't be surprised if El Pollo Loco catches up.

How the two part ways and don't compete head-on
First, just because two restaurants have Mexican themes doesn't make them identical just as Taco Bell is much different than Chipotle Mexican Grill. In fact, El Pollo Loco is may be even more different than Chipotle than Taco Bell is. El Pollo Loco serves fire-grilled chicken first and foremost, which makes it more like a grilled version of KFC. On that note, El Pollo Loco, despite potentially higher quality than typical fast food, really fast food and not fast-casual like Chipotle Mexican Grill.

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Source: El Pollo Loco

El Pollo Loco mentions in its filing that the definition of fast-casual, according to Technomic, is "a limited or self-service format with average check sizes of $8.00-$12.00 that offers food prepared to order within a generally more upscale and developed establishment." With an average check size of $9, that fits Chipotle Mexican Grill. The $5.83 average for El Pollo Loco fits fast food, which is defined as within the $3 to $8 range. El Pollo Loco is smack in the middle..

Then there is the food. While Chipotle Mexican Grill has nearly 100% Mexican food, El Pollo Loco attributes only around 53% of its sales to its Mexican entrees, with the remaining 47% coming from its bone-in chicken meals. That said, El Pollo Loco believes the rapid overall growth in traffic it has seen in the last few years resulted from the success of chains like Chipotle Mexican Grill, as this has produced more broad-based acceptance of Mexican food in general. 

Finally, while one of Chipotle Mexican Grill's top selling points is the "Food With Integrity" motto that includes sourcing ingredients locally from animals treated humanely along with sourcing non-GMO, non-antibiotics, and fresh. El Pollo Loco only goes the freshly made route. It tries to sound like Chipotle Mexican Grill by saying "food that is minimally processed and maintains its integrity," but that is apparently intentionally vague.

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Concentration of El Pollo Loco restaurants. Source: El Pollo Loco.

Foolish final thoughts
It's good news for future El Pollo Loco investors that these restaurant chains differ so much, because who wants to make an investment in a company that needs to take on Chipotle Mexican Grill? El Pollo Loco has an interesting niche. It states, "There are no significant direct competitors with respect to menus that feature marinated, fire-grilled chicken."  While El Pollo Loco still competes with other chicken chains indirectly, it has something quite unique.

El Pollo Loco is no Chipotle Mexican Grill in terms of the type and style of its restaurants, but the opportunity for the company could be just as big or bigger. It has around 400 restaurants that are growing fast, but as you can see from the map, most of them are concentrated in a very small geographic area, which leaves the rest of the country wide open. It will be an interesting story to watch in the years ahead, one that Fools should keep a close eye on. 

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill. 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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