Chipotle Mexican Grill (CMG 1.70%) is one of the most amazing success stories in the restaurant industry over the past decade. The stock has risen more than 350% over the past five years, and sales have increased from $1.8 billion in 2010 to a forecasted $4.7 billion for 2015. The company is clearly doing a lot of things right, and our contributors today will highlight three crucial areas where Chipotle is beating the competition.
Andres Cardenal (top-quality ingredients). Most restaurant chains tend to reduce the quality of their ingredients as they grow. The idea is to simplify operations and cut costs, which usually results in more artificial and highly processed ingredients. In many cases, this approach hurts the nutritional quality and flavor of the menu.
Chipotle, on the other hand, is staying true to its core values when it comes to food quality. The company uses fresh ingredients, sourced from local producers when possible. In fact, Chipotle claims that it serves more local produce than any other restaurant company in the United States.
Chipotle was the first national chain to voluntarily disclose the presence of GMOs in its food in 2013, and this year it became the first U.S. chain serving food made entirely with non-GMO ingredients. The company uses meat and dairy from pasture-raised animals, and the farms that supply Chipotle aren't allowed to use nontherapeutic antibiotics or synthetic hormones.
This approach is increasingly important for health-conscious consumers, and it also means the food tastes better, providing a key source of competitive strength for Chipotle.
Tim Green (simplicity): One thing Chipotle has managed to do extremely well is maintain a dead-simple menu. Big changes are infrequent. In fact, the last major change was adding a tofu option last year. Compare this approach to fast-food chains such as McDonald's or Taco Bell, which need to constantly come up with new promotional items to drive customers to its stores.
The quality of Chipotle's food is all it takes to keep customers coming back, and that allows the company to focus on maintaining that quality. Having a limited menu also helps keep things running smoothly in the kitchen. One of the major criticisms of McDonald's in recent years has been that adding too many menu items too quickly bogged things down at its restaurants.
Other fast-casual chains have a much broader menu. Panera Bread, for example, offers everything from salads to pasta to flatbreads to breakfast items. Variety is often a good thing, but Chipotle's laser focus on its core menu works extremely well for the company. While Chipotle has been criticized for not rolling out breakfast items, doubling the menu and complicating the core operation could potentially do more harm than good. In the end, the simplicity, constancy, and quality of Chipotle's menu is the key to the company's success.
Steve Symington (smart expansion strategy): Chipotle's delicious food sets it apart from the competition, but I'm even more impressed by the company's strategy for building new restaurants. For one, while many restaurant chains use franchising to quickly grow with little overhead cost, all of Chipotle's restaurants are company owned. This structure enables Chipotle to maintain operational control and, most significantly, ensure a consistent dining experience, good employee culture, and the proper ingredient sourcing crucial to maintaining its "Food With Integrity" mantra.
In addition -- and in contrast to the traditional large-format locations that accounted for much of its early expansion -- Chipotle is carefully supplementing growth with smaller-format restaurants. To be fair, these smaller stores also run the risk that diners won't enjoy the full "Chipotle experience" they could get at locations with more room for seating. But at the same time, they also offer the benefit of lower occupancy costs and operating expenses. And Chipotle's brand has become better known among consumers in recent years, making that experience less necessary for familiar diners, or eaters on-the-go. Further, this approach allows Chipotle to find its way into more areas in an increasingly competitive real estate market.
Over the long term, this strategy will become all the more important as Chipotle strives toward its goal of more than doubling its number of restaurants to roughly 4,000. For patient investors willing to hold as Chipotle's strategic expansion plays out, the financial rewards could be absolutely mouthwatering.