Though many restaurants took a beating during the COVID-19 pandemic, fast-casual restaurants largely managed to come away relatively unscathed. That's because their competitive price point and take-and-go nature kept customers coming even when unemployment was skyrocketing, and COVID-19 cases were surging.
Chipotle Mexican Grill (CMG 1.86%), meanwhile, has enjoyed its share of success over the past two years -- so much so that the company is looking to expand its footprint. But its target market may be surprising to some investors.
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Chipotle heads for the 'burbs
While so many restaurants had a hard time generating revenue during the pandemic, Chipotle did a great job of pivoting. Not only did it ramp up its digital ordering, but it also started experimenting with new store layouts that lend to simplified takeout and delivery while also cutting square footage and slashing costs.
Now, Chipotle is thinking big by forging forward with expansion plans. In February, it told investors it's shifting its goal of adding 6,000 new North American locations to 7,000.
That's a very good thing for real estate investors. Many commercial spaces are sitting vacant due to pandemic-fueled business closures. And landlords with vacancies would undoubtedly embrace the opportunity to welcome Chipotle into the fold.
But a big reason Chipotle is upping its expansion plans boils down to its willingness to branch out into smaller towns and suburban markets. And given a recent shift in workforce patterns, that move makes a lot of sense.
These days, a lot of people are continuing to do their jobs remotely in the wake of the pandemic. And even once full-fledged office returns become safer or more palatable, a large number of workers may continue working remotely simply because that arrangement is beneficial to them and their employers.
As such, in the coming years, there could be more demand for fast-casual restaurants in smaller towns and suburbs. By capitalizing on that shift, Chipotle is positioning itself to become a leading restaurant stock, all the while giving competing chains a true run for their money.
Should other chains follow Chipotle's lead?
Many food establishments rely heavily on takeout orders as a primary revenue driver. And at this stage of the game, it's time to accept that there's money to be made outside of large cities.
If Chipotle's efforts prove successful, we could see an uptick in restaurant chains that expand to less-traveled corners of the country. Setting up shop in the 'burbs makes sense due to not only the evolving work patterns but also the more affordable price point to be found outside of large metro areas.
Of course, those less expensive leases may come at a cost -- smaller populations to serve. But given Chipotle's competitive price point, there's a good chance suburban customers will give the chain plenty of business once it opens its doors nearby. So, branching out into the suburbs is a move that could easily pay off.