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Is Chipotle Being Run by Ad Men?

By Philip Saglimbeni - Apr 24, 2014 at 3:05PM

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The management team of Chipotle continues to prove that it is one of the best in the business with its ability to effectively capture and retain consumer loyalty.

After reading through the latest earnings call transcript from Chipotle Mexican Grill (CMG 3.06%), it is apparent that one of the key growth drivers for the company is its unique food culture. Chipotle's focus on high-quality ingredients separates it from the vast majority of its competitors like Panera Bread (PNRA) and allows the company to maintain a loyal and growing consumer base.

Over the years, management at Chipotle has done a fantastic job of nurturing the company's image as an innovative leader in fast-casual dining. The company's robust advertising campaigns and inventive community programs should help Chipotle maintain its edge going forward.

Source: Chipotle 

Ad men?
Chipotle continues to advance its status as a leader in high-quality ingredients. The company has removed almost all of the ingredients that contain GMOs, genetically modified organisms, from its menu lineup. The only food products at Chipotle that still have GMO ingredients are corn and flour tortillas. Not surprisingly, management is experimenting with non-GMO tortilla recipes and hopes to have them rolled out by the end of the year. 

Co-CEO Steve Ells explained, "We also want to educate our customers so they'll appreciate that these better ingredients prepared using classic cooking techniques is the reason our food taste so good. Ultimately, it's our belief that the more people know about their food and how it was raised and where it comes from, the more likely they will be to eat at Chipotle." 

To make more consumers aware of Chipotle's commitment to high-quality ingredients and the benefits of this, management at Chipotle continues to aggressively promote its brand in various ways. First, the company uses novel approaches like its four-episode satire Farmed and Dangerous, which premiered on Hulu and Hulu Plus to surprisingly large audience numbers.

Co-CEO Ells explained, "The day the first episode posted to Hulu alongside some of the most popular television shows, it was among the top five viewed shows. After the first episode was released, the show exceeded Hulu's audience projections for the entire run of the show and coverage of the show and related issues in the news media generated millions of impressions." 

Second, the company puts on Cultivate events, which are essentially large gatherings of health-conscious consumers organized by Chipotle to spread awareness of the benefits of healthy cooking and eating practices. The company estimates that approximately 100,000 people attended Cultivate events last year and management hinted that it expects even more to show up at 2014's events, which will take place in San Francisco, Dallas, and Minneapolis. 

Additionally, the company is still utilizing traditional advertising techniques as well. Chipotle's 'Better Ingredients' campaign is currently running in many domestic markets and it uses print, online, and outdoor ads. 

Chipotle's management is basically utilizing the same approach currently employed by Panera Bread, focusing on the company's core strength. Although the two competitors have different core strengths, they have taken similar approaches.

Panera Bread is embarking on what management refers to as Panera 2.0, a strategy to enhance the overall customer experience. Since Panera is known best for its cozy and inviting in-store atmospheres, management's attempts to reduce wait times and improve customer interaction are incredibly promising and they should lead to increased diner loyalty and store traffic. 

At the same time, Chipotle's strategy of highlighting its commitment to high-quality ingredients and healthy eating is essential to maintaining customer loyalty and lasting brand power.

Both strategies appear to be working. According to Yahoo! Finance, analysts project that Chipotle will grow revenue 18.1% and EPS 23.4% in 2014. Meanwhile, analysts expect Panera to benefit more in 2015, which is when Panera 2.0 is expected to take effect. Analysts project that Panera will grow revenue 7.3% in 2014 and 10.3% in 2015 and EPS 3.9% in 2014 and 14.7% in 2015. 

Of course, the attempts at strengthening Chipotle's brand are being done so the company can continue to expand in the future. Unsurprisingly, Steve Ells warned again that Chipotle's growth would primarily be driven by the expansion of the company's Mexican-themed restaurants in the United States. On this front, the company is doing quite well as management expects to open up 180-195 new restaurants in 2014, 44 of which already opened in the first quarter. 

However, the greatest growth will likely come from international markets and operations outside of the Chipotle Mexican Grill restaurant brand in the future. Co-CEO Ells explained, "Finally, we're encouraged by the growth seeds that we have planted including our international expansion, ShopHouse and Pizzeria Locale. Since our last call we recently opened our third restaurant in Paris and we now have 10 restaurants open in Europe including six in London and one in Frankfurt." 

Bottom line
Chipotle has a masterful advertising strategy. The approach highlights the company's strengths and reminds consumers about its business in clever and inventive ways. A restaurant company that produces hit programming on Hulu is certainly a rare thing!

As long as the company can maintain its edge among consumers, the continued expansion of restaurants both domestically and internationally, as well as the roll-outs of new restaurant brands, should foster robust growth down the road.

Accordingly, investors looking for aggressive long-term growth in the restaurant industry should consider Chipotle on post-earnings weakness. 

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Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
$1,329.02 (3.06%) $39.50
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