Earlier in the year Chipotle (NYSE:CMG) announced that it's continuing its innovative marketing campaign by producing an original comedy series, Farmed and Dangerous. The show will satirize industrial agriculture, something that might prove to be bad news for fast-food mogul McDonald's (NYSE:MCD). Who should investors bet on: the mission-driven burrito maker, or the slow-moving burger giant?
There's no business like burrito business
Chipotle has historically encouraged customers to question where their food comes from. As such, the company has aimed to provide its customers with a transparent dining experience. From its open-kitchen restaurant environment, to its above-and-beyond compliance with the California Transparency in Supply Chain Act , Chipotle has been hard at work branding itself as a purpose-driven company that serves food with integrity.
Working with the likes of Willie Nelson and Fiona Apple, the company has embraced a fearless marketing campaign. Aiming to cultivate a better world, Chipotle's poignant Back to the Start and Scarecrow ads have worked well to build brand awareness and market to the conscious consumer in both a catchy and chilling way.
Farmed and Dangerous aims to continue the trend, which has worked well for the burrito maker. For the fourth quarter of 2013 , revenue increased by 20.7% year-over-year to $844.1 million. On top of that, Chipotle opened 56 new restaurants within the last year.
The burrito maker is intent on building a loyal following by embracing a transparent and trusting relationship with its customers, a concept that McDonald's is struggling even to define.
All that glitters is not gold
While Chipotle is working to reduce risk through trustworthy marketing and engagement, McDonald's has been doing its best to sweep aside bad press.
Lately, the fast-food giant has been working overtime to address customer concerns about the company's supply chain. The company has tried to ride the conscious consumption wave by marketing their Filet-O-Fish sandwich as sustainable through building a partnership with (?) the Marine Stewardship Council. McDonald's is even trying its hand at tackling the sustainable beef market, but first they have to actually define what that means.
McDonald's has historically relied on brand recognition and new item offerings in order to stay relevant. As of late, both tactics are falling on deaf ears. Customers perceive the golden arches as a beacon for greasy burgers and salty fries -- not exactly the best image to present to a growing market of conscious consumers.
What does it all mean?
In a conference call earlier in the year, McDonald's CEO Don Thompson acknowledged the company's shortfalls stating that it would need to "reestablish the trust of customers" through "basic execution at a restaurant level" as well as "marketing engagement at a much stronger level." He also noted that the company would need to "make sure that [its] menu is relevant." It's the issue of dwindling relevance that should frighten investors.
McDonald's January guest count fell 1.6% in the Unites States, and 2% globally. U.S. same-store sales dropped 3.3% in January, which may not be directly tied to public perception, but could be indicative of a larger trend. Chipotle, on the other hand, saw a 9.3% increase in comparable store sales .
Investors should consider brand innovation and relevance when looking at their next restaurant stock purchase. Does McDonald's have what it takes to keep up with the ever-changing tide of consumer demand? If last quarter tells us anything, it's not likely that the golden arches will stack up against the svelte Chipotle brand.
Customers are consuming fewer calories each day, reading nutrition labels more, and are cutting back on fast food meals . Considering these trends, investors should dig in to the innovative and transparent Chipotle and pass on the sluggish, over-fed Mickey D's.