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Can Yum! Brands Succeed Where Chipotle Failed?

By Rick Munarriz - Feb 18, 2020 at 10:50AM

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The parent company of Taco Bell, Pizza Hut, and KFC will be adding a burger chain in a few months. It should be able to avoid the mistakes that Chipotle made with TastyMade.

Instead of breaking a habit Yum! Brands (YUM 0.38%) will be breaking in The Habit Restaurants (HABT) later this year. The parent company behind Taco Bell, Pizza Hut, and KFC announced last month that it will be acquiring The Habit in a deal worth roughly $375 million. 

The deal that should close no later than June will add a cult-fave burger concept to Yum! Brands' existing arsenal of quick-service Mexican, pizza, and fried chicken chains. It's a smart move in theory, but reality hasn't been as kind in the past. This isn't the first time that Yum! Brands is flipping burgers. It owned A&W before unloading the throwback burger chain in 2011. More recently, we had Chipotle Mexican Grill (CMG 2.00%) try and fail to get its TastyMade concept off the ground. Even with the recent white flags when it comes to red meat, the smart money here has to be with Yum! Brands passing this test with flying colors.

Exterior shot of a The Habit Burger Grill restaurant.

Image source: The Habit Restaurants.

It's a hard Habit to break

Chipotle's failures with TastyMade shouldn't weigh on how Yum! fares with The Habit Burger Grill. The most important difference between the two hamburger helpers is that Chipotle started from scratch when it opened its first -- and ultimately only -- TastyMade in Ohio in 2016.

Making a good burrito doesn't guarantee that you'll catch lightning in a bottle again when it comes to burgers, fries, and milkshakes. Initial reviews weren't flattering for TastyMade, and it wasn't a surprise when Chipotle Mexican Grill chose to shutter its lone burger outpost just 17 months after it opened.  

The Habit has 265 mostly company-operated locations across the country, so it already has 264 more locations than peak TastyMade. The Habit's reviews are also largely positive. A Consumer Reports reader survey completed the year before The Habit's 2014 IPO named its signature Charburger as the top burger offering in terms of quality among roughly two dozen of the largest chains in this wide niche. 

Yum! Brands has also been successful in building out more than a single concept. As great as Chipotle has been it was never able to grow its smaller ShopHouse, Pizzeria Locale, and TastyMade side offerings to the point where they could move the needle.

Investing in restaurant stocks isn't easy given the fickle nature of diners, but clearly Yum! and Chipotle have carved different paths to success. Chipotle Mexican Grill has excelled with its namesake concept, while Yum! has mastered the art of growing several chains at the same time. 

The Habit is everything that TastyMade was not, largely in that it's established and well regarded in the burger community. It will be interesting to see what Chipotle can do once it gets its hands on a proven sibling concept for a change, but for now, you can't judge Yum! Brands' chances for success based on Chipotle's failures.

Rick Munarriz owns shares of Habit Restaurants. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,663.70 (2.00%) $32.61
Yum! Brands, Inc. Stock Quote
Yum! Brands, Inc.
YUM
$118.16 (0.38%) $0.45
The Habit Restaurants, Inc. Stock Quote
The Habit Restaurants, Inc.
HABT

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