By not sacrificing its focus on quality, Chipotle Mexican Grill (NYSE:CMG) takes a unique and transparent approach to fast food. Yum! Brands, (NYSE:YUM), on the other hand, has sacrificed authenticity for dining diversification, thus reducing the fast-food giant's relevance.
Reason No. 1: culture
Chipotle integrates its unique corporate culture into each of its storefronts. The company believes that "creating a performance based culture [will] lead to the best restaurant experience possible for [its] employees and customers."
Chipotle embraces its employees' unique perspectives, personalities, and strengths, as it believes these factors contribute to the brand's success. Chipotle has a well-defined and transparent advancement structure that encourages loyalty from part- and full-time employees, thus reducing turnover and training costs.
On the other hand, Taco Bell and parent Yum! Brands rely heavily on franchised operations, which intrinsically hinders advancement. About 86% of Yum!'s employees are part time. And while there is a small opportunity for advancement, promotions are limited to store-specific management. Employee development isn't something that Yum! prioritizes. As such, the fast-food giant faces the risk of high turnover and employee dissatisfaction. That's not great for specific stores and customers, but Yum! won't take too much of a hit since it'll still be getting its franchise fee.
Reason No. 2: brand Identity
Chipotle recognizes the value in cultivating a dining experience that places ownership upon the customer, basically saying: "You know what you want, tell us what you'd like and we'll customize it to your specifications, as quickly as possible."
Providing this highly customizable, affordable menu mostly consisting of whole foods is a cornerstone to the Chipotle experience. By providing customers a do-it-yourself meal experience, Chipotle has more than 115,200 food combinations limited only by customers' imaginations.
This do-it-yourself brand identity ensures a continuous dialogue between customers and their local Chipotle. This aspect of menu collaboration encourages a loyal relationship between the burrito maker and its guests.
Taco Bell, on the other hand, seems to be going through an identity crisis. Along with its new breakfast items, Taco Bell has four menus to speak of: Cantina Bell (aimed at foodies), Fresco (aimed at the health conscious), Why Pay More (aimed at folks who are looking for a cheap meal), and Fourthmeal (aimed at Taco Bell's tried and true market of 20-something guys). Diversifying its menu in this way is effective in attracting a number of different demographics, but it doesn't ensure the development of long-standing brand loyalty.
Reason No. 3: ingredient transparency
As we know, Chipotle is intent upon serving food with integrity. The burrito maker has been working with its supply chain to ensure that each ingredient the company offers is of upstanding quality. Opting for local (within 350 miles), sustainably raised food, Chipotle works with family farmers in order to support the folks who are stewards of the land. This approach results in clear ingredients consisting of mostly whole foods and additives that you can actually pronounce. Just compare Chipotle's beans to Taco Bell's...
Chipotle has focused on providing a menu chock-full of basic ingredients that are ethically sourced. Prioritizing menu transparency has cultivated trust among its customers, something that Taco Bell has had trouble attaining in recent years.
Organic food sales are growing at 16 times those of conventional food. Therefore, it could be assumed that -- if this trend continues -- Chipotle will stay relevant as a trusted brand while Taco Bell will go by the wayside.
How do investors define value?
For all these reasons and more, Chipotle boasts a higher price-to-sales ratio of 5.4, beating out both Taco Bell, at 2.5, and the industry, which has a price-to-sales ratio of approximately 2.1. So what does that tell us?
First of all, Chipotle is doing something right by staying focused on the quality of its unique culture, brand identity, and transparency. Working to build a loyal work force and customer base has increased the value placed on each dollar it makes. Taco Bell, on the other hand, is treading water to make up for its inauthentic customer experience by focusing on increasing menu options.
It boils down to this: Chipotle is laser focused on staying true to what it does best, which is providing a custom dining experience for a customer base that prioritizes high quality and ethically source food. This approach to food with integrity has proven to be one of Chipotle's greatest assets and will likely ensure the brand's relevance for years to come.