3 Reasons Chipotle Mexican Grill Stock Could Rise

Several powerful growth drivers could propel the restaurant leader's shares to new heights.

Joe Tenebruso
Joe Tenebruso
Feb 23, 2019 at 6:31AM
Consumer Goods

On the heels of its strong fourth-quarter financial results, Chipotle's (NYSE:CMG) shares have surged 40% in 2019. Yet even with the stock already up sharply so far this year, plenty of gains may still lie ahead for the popular Mexican-style restaurant chain.

Here's why.

A compass pointing towards the word "growth"

Image source: Getty Images.

New menu items

By appealing to new customer segments -- or giving existing customers more reasons to visit more often -- a restaurant chain can drive increased traffic to its stores and breathe new life into its sales. Chipotle no doubt had this in mind when it recently introduced "Lifestyle Bowls" designed to appeal to people following popular eating plans such as the Paleo and Ketogenic diets. The bowls are intended to make it easier for people to follow these health-focused, but somewhat restrictive, diets, particularly when they're away from home.

"Now more than ever, Americans are embracing new and varied approaches to healthy living and wellness," Chipotle chief marketing officer Chris Brand said in a press release. "We've watched guests custom create lifestyle-specific bowls when ordering in our restaurants, so it made sense to offer delicious options via our online channels that help people easily order bowls with real ingredients that fit their wellness goals." 

Chipotle's new lifestyle bowls should help its brand better resonate with those focused on living healthier lives -- an ever-growing segment of the population that the company's high-calorie meals have largely failed to address up until now. In turn, Chipotle sales could receive a boost from this wellness-focused crowd in the quarters ahead.

Digital sales

Notably, Chipotle's lifestyle bowls are exclusively available through its mobile app and website -- a move designed to fuel the chain's digital initiatives. 

Digital sales are valuable for several reasons. They help to boost customer satisfaction by reducing human error during the order-taking process. Employees that would otherwise be needed to take orders can be redeployed to other food production or customer service roles -- or eliminated altogether in order to reduce labor costs. Online orders also bypass traditional in-store ordering lines, thereby allowing Chipotle to increase sales without increasing customer wait times. All of these benefits help to boost sales, margins, and by extension, profits.

Chipotle knows this, which is why it's doubling down on digital efforts. The company is adding food production lines and order pickup shelves to its restaurants so as to be able to more efficiently service digital orders. It's also testing new mobile order pickup lanes it refers to as "Chipotlanes," which are helping to boost sales at the restaurants which deploy them.

Together, these initiatives are helping to drive Chipotle's digital sales sharply higher, to the tune of 66% growth in the fourth quarter. Better still, investors can expect the company's digital strategy to be a powerful source of revenue growth and margin expansion in the coming years. 

Check out the latest Chipotle earnings call transcript.


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Rewards

Chipotle's new rewards program could be another significant source of growth going forward.

Done right, loyalty programs can have several notable benefits. They can help to drive repeat purchases and increase the frequency of customer visits, particularly during off-peak periods. Perhaps most importantly, rewards programs delivered via digital apps can help restaurants collect valuable customer data, which can be used to design more personalized promotions, thereby boosting the effectiveness of their marketing investments.

In this way, Chipotle's new customer loyalty program should help to fuel further increases in the restaurant chain's sales and profits in the years ahead.