Chipotle Mexican Grill (NYSE:CMG) launched itself to the forefront of fast-casual dining through the simple allure of Mexican cuisine: a combination of rice and beans, tortillas, served together with a selection of beef, chicken, and pork. Few would argue it hasn't delivered on its promise of "food with integrity."
The customizable burrito bowl is just one way consumers looking for healthier dining options have turned Chipotle into a juggernaut, with revenues hitting $3.8 billion over the last 12 months and growing at an average rate of 25% a year for the past decade.
So you might be surprised to learn Chipotle Mexican Grill wasn't the favorite Mexican food chain in a survey of more than 32,400 Consumer Reports subscribers who ranked 65 restaurants during 96,000 dining experiences across the country.
Bowled over by this surprising upstart
Oh, make no mistake, Chipotle was still highly ranked. It came in second out of the eight Mexican chains surveyed, and fared much better than rival Yum! Brands' (NYSE:YUM) Taco Bell, which was dead last, likely because it's a fast-food chain at a time when people are gravitating toward fast casual.
No, the Mexican restaurant customers rated tops was Rubio's Fresh Mexican Grill, the Carlsbad, California fast-casual chain specializing in fish tacos.
But Rubio's is not some Johnny-come-lately trying to bite off of Chipotle's success. It actually preceded its rival into the market by about 10 years, but where Chipotle Mexican Grill has translated a seemingly universal love for Mexican food into a national phenomenon with 1,700 restaurants, Rubio's remains a largely regional favorite with just over 190 stores spread across California, Arizona, Colorado, Nevada, and Utah.
How Rubio's became a catch
Serving Baja-inspired recipes in those markets makes for a highly competitive business, so having a signature dish that distinguishes it from the rest is essential to success. Rubio's has done that with its fish taco, the sandwich that inspired the chain's founding.
As the company tells it, founder Ralph Rubio tried a fish taco while visiting a Mexican taqueria and immediately became hooked on them. A few years later he opened his first restaurant -- a walk-up stand -- and soon found himself expanding as the sandwich grew in popularity.
The secret to Rubio's selling over 170 million fish tacos is a refrain familiar to anyone watching the restaurant industry these days: a commitment to using fresh, high-quality ingredients in a pleasing atmosphere at affordable prices. The same recipe Chipotle Mexican Grill has been using to drub the competition.
Rubio's has been also updating its restaurants to introduce a new design aesthetic while retaining the roots of the original experience. The chain says restaurants undergoing the makeover report a double-digit increase in same restaurant sales, and it will eventually roll out the updated design to all 190 restaurants.
Rubio's, which also placed 14th on FastCasual.com's annual Top 100 Movers & Shakers list, has the additional distinction of topping all other Mexican restaurants in Consumer Reports list of chains offering the healthiest dining options.
The trend that's fast overtaking fast food
Fast-food chains are suffering a mass exodus of customers, forcing them to experiment with offering fresh ingredients and personalization. McDonald's (NYSE:MCD) rollout of the build-your-own burger option is a direct result of the inroads made by fast-casual chains like Rubio's and Chipotle Mexican Grill. Yum! Brands is also testing its own fast-casual chain, a Day of the Dead-themed taco-and-craft beer mashup, U.S. Taco Co., and some think Taco Bell ought to be spun off from Yum! Brands as a stand-alone concept to more effectively compete.
Rubio's Fresh Mexican Grill shows the importance of staying within your circle of competence. While going public in 1999 provided it with the financial resources to expand to its current size, being taken private again a decade later allowed it to focus on building up its unique brand of fresh "beach Mexican" cuisine.
Doing what you know best and playing to your strengths is a recipe for success for Chipotle Mexican Grill, too. It may have just missed out on being the top Mexican food chain, but it's by far the whole enchilada when it comes to making money on a national scale. As investors, that's what we should continue focusing on.