Chipotle Mexican Grill (NYSE:CMG) may seem like it's fumbling around in response to recent health concerns, but it's not.
It is developing a blueprint that other businesses with similar goals will be able to relate to. It may be that it's not possible for a broad corporate chain to produce "food with integrity" as Chipotle once did, at least not without also having to take food safety into consideration. But by blending the two goals together, an acceptable mix may be found.
In this segment from the Industry Focus: Consumer Goods podcast, Vincent Shen and Asit Sharma explain why the fast-casual industry is actually establishing a sustainable, repeatable business model that will allow it to succeed in the long term.
A transcript follows the video.
This podcast was recorded on May 24, 2016.
Vincent Shen: It seems like the company's trying to strike a balance here of finding the preparation techniques that they're launching at these restaurants to avoid these food safety issues, and at the same time work with their supply chain but also their preparation process overall and keep customers satisfied, especially at a very pivotal, sensitive time when I think they are under this extra scrutiny essentially due to the issues they ran into recently.
Asit Sharma: Yeah. I think there's a big-picture takeaway here. Kudos to Chipotle because they're spending the money, they are working very hard to change their processes, and what looks like a lot of stumbling and fumbling today and trying to react, if you look carefully they're putting in new procedures for the long term. Let's go back to this idea of food with integrity. What they're doing is creating a new way. They understand that that original vision isn't going to work, it's just not possible, so they're recreating food with integrity and they're building a model that other restaurants that are interested in the same type of business model can follow in the future. It looks different, but at the end of the day if you can promise food safety and get close to what Chipotle had before, you've got a sustainable business.
For me that's something essential that ties back to the stock, its valuation, Chipotle's future comps, their comparable sales, and the ability of this company to bounce back. I think by investing this time and this effort with suppliers, with procedures, spending these millions of dollars, they're building themselves to be that long-term company that they always purported to be. Personally I think that's what they need to do, avoiding the issue and slapping some marketing on this would have been the utmost wrong move, totally wrong move, but they avoided that. They're acting with integrity, in my opinion.