Remember when being called the next Starbucks (Nasdaq: SBUX ) was the ultimate compliment? Every fledgling premium coffee joint -- or quick-service eatery for that matter -- wanted to be the next killer brand.
These days, being called "the next Starbucks" isn't a glowing endorsement, so let me shoot out the titular question: Is Chipotle Mexican Grill (NYSE: CMG ) (NYSE: CMG-B ) the next Starbucks?
You're probably shaking your head, but let's go over a few of the recent similarities.
- Starbucks has been selectively discounting its prices, to shake its recessionary stigma as a place for premium-priced hot beverages. Chipotle is testing out "low roller" menu markdowns in its home base of Denver.
- Starbucks has expanded from its coffee-based roots to offer everything from smoothies to oatmeal. Chipotle is stretching its burrito-rolling strengths by testing out new items like soups and publicizing the off-menu items like quesadillas. In both cases, one can argue that the market-widening initiatives could dilute their brands. The last thing Chipotle wants to do is wake up one day to find that it's Baja Fresh or Jack in the Box's (Nasdaq: JACK ) Qdoba.
- Invaders! McDonald's (NYSE: MCD ) has been pushing its McCafe coffee bars, hoping to reach more of Starbucks' clientele. Chipotle may not feel the same kind of challenge, though burger chains such as McDonald's and Burger King (NYSE: BKC ) have introduced flour-tortilla-based chicken wraps.
The flip side to the argument is that Chipotle's performance is clearly way ahead of where Starbucks appears to be heading.
- Starbucks has strung together several quarters of fading same-store sales. Chipotle's comps remain positive, though lately higher prices have helped offset lower customer counts at the store level.
- Earnings at Starbucks fell by 77% this past quarter. Chipotle's bottom line rose 47%.
There are also some other encouraging signs. In a Motley Fool interview with Chipotle Chief Financial Officer Jack Hartung, he explained how corporate layoffs have eaten into weekday lunch traffic in some of the affected markets, but that those markets tend to have a healthy bump in traffic on Fridays.
"What that tells me is that people still love coming to Chipotle," he says. "They might be holding back a little bit during the week for economic reasons, but when Friday comes, it is time to relax a little bit, enjoy a little bit, and that is when sales surge. When I see that in a market, I see that as a great sign that people still want to come to Chipotle and they are just being held back for economic reasons."
Another encouraging point that Hartung made is that guacamole sales -- a premium-priced add-on at Chipotle -- aren't just holding up at 15% to 20% of customer orders, but actually increasing.
"It is growing in this environment," he says, as more customers are willing to pay up to have guacamole in their burritos or as a chip dip.
Let's hope that customers aren't the only ones seeing more green these days.
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