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3 Reasons Why Shake Shack Doesn't Have to Worry About Chipotle

By Rick Munarriz – Mar 31, 2016 at 2:44PM

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The burrito roller takes out a "Better Burger" trademark, but it could be an opportunity for Shake Shack instead of a threat.

There could be more beef in Chipotle Mexican Grill's (CMG 1.33%) future. The former market darling in the realm of fast casual has filed a trademark application for the "Better Burger" name.

This has naturally led folks to speculate that Chipotle is cooking up a gourmet burger concept. That may come as a relief to investors in the chain since its flagship concept has posted five consecutive quarters of double-digit declines in year-over-year comps growth. This may also come as a concern to Shake Shack (SHAK 2.13%), The Habit (HABT), In-N-Out, and any other  of the "better burger" chains.

The threat for now is minimal. Let's go over why Shake Shack, The Habit, and their peers don't have anything to worry about just yet.

1. Chipotle moves slow with its sister concepts
The burrito roller also runs the ShopHouse Southeast Asian Kitchen and Pizzeria Locale. Asian and pizza seemed as unlikely expansion targets as cheeseburgers, but Chipotle still embraced the concepts that it could give its fast casual spin.

The first ShopHouse opened five years ago. I was actually there days after the grand opening. It was impressive in some ways, but certainly not enough to make me think that it would be the Chipotle of Southeast Asian cuisine. Either way, five years later the chain has expanded to just 15 locations.

Chipotle has moved even slower with Pizzeria Locale, the pizza concept that Chipotle tweaked to compete in the fast-growing "better pizza" market where personal-sized pies are assembled as ordered and baked up in a couple of minutes.

The Habit has 137 company-owned eateries and another five licensed locations. Shake Shack has 44 company-owned units, and there are another five domestic licensed locations and 35 licensed international restaurants. It will take a long time for Better Burger to move the needle for both the industry and Chipotle's bottom line.

2. A trademark isn't a new concept's birth announcement
Shake Shack stock took off last year after it applied for a ChickenShack trademark. Speculation swirled around the possibility of Shake Shack rolling out a sister concept emphasizing chicken. It didn't happen. We eventually found out that it was just a fried chicken sandwich that was being added to its menu. In other words, this doesn't have to be a stand-alone concept.

That may seem even more problematic for Shake Shack, The Habit, Smashburger, and others. Are burgers being added to Chipotle's namesake concept, something that would find it flipping beef patties at more than 2,000 locations if it goes national? Of course not. It would be a "diworseification" blunder for the ages.

Chipotle also might decide to do nothing about it after these initial exploratory moves. We've seen how slow it's been tiptoeing with Pizzeria Locale while rivals with similar models are expanding briskly. Chipotle's putting its foot in the door, but it doesn't mean that it's going to crack it open.

3. Chipotle's name won't make it a hit
Companies that launch sibling concepts rarely catch lightning in a bottle twice. Why would Chipotle excel with burgers? There are already plenty of premium players with a "food with integrity" bent. The sneeze guard-buffered assembly line is old hat.

The "better burger" category already has its darlings, unlike the burrito market when Chipotle rocked if not outright defined the fast casual niche. Chipotle's savvy management team and execution history before the recent health scare will help, but the chain will be playing from behind if it wants to catch up to Shake Shack as the "better burger" concept that landlords will bend over backwards to attract. 

Rick Munarriz owns shares of Habit Restaurants and Shake Shack. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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