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Chipotle's Superb Quarter Offers New Insights Into ShopHouse and Pizzeria Locale

By David Kretzmann – Feb 8, 2014 at 6:51AM

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Chipotle blew the market away with its latest quarterly results. This quarter also offered key insights into Chipotle's fledgling concepts, ShopHouse and Pizzeria Locale.

Chipotle Mexican Grill's (CMG 0.40%) superb fourth-quarter results are almost like a blast from the past. Sales for the quarter increased 20.7% year over year, net income grew 29.8%, and the company reported comparable-restaurant sales growth of 9.3%. To top it off, Chipotle's free cash flow production increased 47.5% in 2013 compared to 2012. Not too shabby for a chain now valued at more than $17 billion.

Chipotle continues to fire on all cylinders, with 1,595 restaurants in operation and another 180-195 locations slated to open in 2014. This quarter also gave us the chance to learn more details about Chipotle's fledgling concepts, Pizzeria Locale and ShopHouse

Pizzeria Locale 
In December it was revealed that Chipotle had been working with Pizzeria Locale -- a fast-casual pizza concept founded in Denver by award-winning restaurateurs Bobby Stuckey and Lachlan Mackinnon-Patterson -- since 2012.

On the fourth-quarter conference call, Chipotle founder and co-CEO Steve Ells shared some helpful insights regarding the details of Chipotle's arrangement with Pizzeria Locale (emphasis added): 

Under our agreement with Bobby and Lachlan, Chipotle has an equity interest in this new venture and could become the majority owner over time as the concept expands. In addition to providing capital to open additional restaurants, Pizzeria Locale can also draw on Chipotle's resources and expertise in other areas such as real estate, finance, purchasing and marketing.

Pizzeria Locale won't be a major driver of growth for Chipotle any time soon, as Ells himself has repeatedly mentioned, but this arrangement gives Chipotle the ability to become a majority owner of Pizzeria Locale should the concept begin to see success in multiple locations. 

Chipotle's interest in Pizzeria Locale largely stems from the leadership of Stuckey and Mackinnon-Patterson, the concept's founders and owners. Ells explains: 

Bobby and Lachlan and their team are driving this concept and are responsible for all facets of restaurant operations. Not only do Bobby and Lachlan share our vision to change food culture, they are exceptionally capable restaurateurs who can help us achieve that.

According to Ells, this year Pizzeria Locale is in the process of identifying locations for new openings in the Denver area.

ShopHouse -- Chipotle's Southeast Asian fast-casual concept started in 2011 -- currently has six locations open in the U.S. Ells shared some of his latest insights about ShopHouse: 

ShopHouse continues to remind me of Chipotle in its earliest days. Customers really love the food and the experience, and we are eager to introduce more people to the flavors of ShopHouse.

Ells expects ShopHouse to continue to expand in the Los Angeles and Washington, D.C. markets, projecting that several more ShopHouse locations will open this year.

Moving forward with Pizzeria Locale and ShopHouse
When following new concepts like Pizzeria Locale and ShopHouse quarter to quarter, it can appear that the concepts are crawling along at a snail's pace compared to the rapid expansion of Chipotle. However, as Ells notes, "If I compare the rate of growth so far with both of these concepts, it's faster than Chipotle started out."

It took two years for Chipotle to open its second and third locations, and the company waited six years before expanding outside of Colorado. ShopHouse is well beyond that milestone within two years, and Pizzeria Locale will likely expand to multiple locations quicker than Chipotle did when it was starting out in the 1990s.

Keeping this in mind, Pizzeria Locale and ShopHouse are expanding comparatively faster than Chipotle in its early years. Although Chipotle is capable of financing ambitious expansion plans in light of its superb financial condition -- the company has $323 million in cash with no debt -- Ells explains that the company is purposefully practicing patience with the new concepts: 

It's not time to unleash them; it's time to grow smartly and watch them and make sure that we're cooking delicious food and serving in a way that excites customers, and we're doing that. We're very happy with the results.

Chipotle is focusing on cultivating leadership and outstanding performance at all levels of the organization, and the same goes for Pizzeria Locale and ShopHouse. Chipotle's overall mission is not tacos and burritos, pizza, or oriental food. Food With Integrity is Chipotle's focus; cultivating quality restaurateurs who deliver premium food ingredients at affordable prices. Pizzeria Locale and ShopHouse may not be discernibly contributing to Chipotle's growth today, but over the next decade or two, these concepts will likely prove to be valuable additions in Chipotle's arsenal for transforming food culture. 

Foolish bottom line
There are numerous new restaurants in the market that investors often proclaim as the next Chipotle, but the truth is that few businesses (let alone restaurants) come close to the value-oriented mission, innovative leadership, and extraordinary financial performance of Chipotle. 

Chipotle is a mission-driven business focused on empowering all of its many stakeholders. In the coming years, investors should pay close attention to the development of the ShopHouse and Pizzeria Locale concepts in relation to Chipotle's overall vision of Food With Integrity. With continued innovative leadership backed by superb financial performance, Chipotle shares would be a sound addition to the portfolios of patient long-term investors.

David Kretzmann owns shares of Chipotle Mexican Grill. You can follow David on his Foolish discussion board, Pencils Palace, on CAPS, or on Twitter @David_Kretzmann. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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