Chipotle Mexican Grill (CMG 2.99%) is hungry for something shiny and new. Later this month it expects to soft open a new concept -- Farmesa Fresh Eatery -- in Santa Monica, California. It will officially open next month.
Farmesa will take the battle-tested Chipotle approach of fast-casual assembly lines. Chipotle's namesake concept is no stranger to bowls that start with a grain or greens as a base before moving on to a signature protein and eventually a toppings bar, but Farmesa has its sights set on Sweetgreen and other high-end salad restaurants.
It's easy to instinctively like Chipotle's chances of succeeding. Farmesa is a portmanteau of farm and mesa, the Spanish word for table. The literal farm-to-table concept is championed by Chipotle's "food with integrity" mantra. Differentiated from Chipotle and at higher price points, it's almost exciting to see the eatery darling attempt to go upmarket with a concept that shouldn't cannibalize its flagship chain. The dry rub here is that Chipotle has a terrible track record of thinking outside of the Chipotle Mexican Grill box.
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Key Data Points
A history of failure
It's been a dozen years since Chipotle opened the door of its first ShopHouse Southeast Asian Kitchen. I was there within the first week of the grand opening, impressed with how easy it was to adapt the original Chipotle playbook a different ethnic bent. ShopHouse was initially popular, and expanded to a few more locations. ShopHouse would shutter the last of its locations in 2017.
As it was winding down ShopHouse, Chipotle turned its creative efforts to burgers by launching Tasty Made. Hoping to make a dent in the then booming "better burger" category, Tasty Made was a flop. It never got past its pilot location, closing down in early 2018.
Between the ShopHouse and Tasty Made fiascos, Chipotle teamed up with a local pizza concept that was gaining momentum. The partnership to expand Pizzeria Locale outside of Denver in 2013 was initially celebrated. But like a pizza that falls from the oven to the floor it was just more wasted dough for Chipotle. All locations outside of Denver would be closed by Chipotle in 2018. Putting the local in Locale, just five Denver-area pizzerias remain.
Image source: Chipotle Mexican Grill.
Chipotle is 0-for-3 in breaking in a new concept over the past dozen years. It was riding the right trends. Southeast Asian cuisine, better burgers, and quick-bake made-to-order pizza concepts continue to thrive. Ripping pages out of the Sweetgreen playbook feels right, but will it be different this time?
In Chipotle's defense, it's the one that has a playbook that is routinely repeated elsewhere. Blaze Pizza, Sweetgreen, and other successful fast casual concepts have copied the assembly line approach that Chipotle championed. It doesn't mean that Chipotle can steal the playbook back.
This doesn't mean that Farmesa will fail. For starters, it's the first new concept under CEO Brian Niccol. The former Taco Bell chief arrived at Chipotle in early 2018, just in time to close down the lone Tasty Made and pull Pizzeria Locale out of Cincinnati and Kansas City. If he is behind a new concept this is definitely a zig for someone who chose to zag earlier.
There's also the opportunity to scale here. Sweetgreen has grown its business by 48% over the past year, more than three times faster than Chipotle. Sweetgreen's growth has come primarily through expansion, and the runway is understandably long for Farmesa if it succeeds.
This is a premium concept. Farmesa bowls will initially sell for $11.95 to $16.95, not far from Sweetgreen pricing and a lot higher than a typical entree at Chipotle. There's a real opportunity here, especially with folks looking for healthier meals featuring a wide range of fresh toppings that aren't easy to duplicate at home.
The safe approach would've been to just acquire Sweetgreen. It's trading for roughly a third of its late 2021 initial public offering pricing. History will tell if launching a homegrown brand was the right approach for the popular restaurant stock, but Chipotle's track record under former leadership isn't very inspiring.
