From humble roots of a single storefront opened some two decades ago, Chipotle Mexican Grill (NYSE:CMG) has become a fast-food industry powerhouse that's forever altered the way many quick-serve restaurants view their menu.
Few companies in any sector can say they've revolutionized an industry, but by consistently promoting "food with integrity" and expanding its footprint to more than 1,800 restaurants, Chipotle spawned a cultural phenomenon that even stalwarts of the business like McDonald's (NYSE:MCD) want to emulate.
When you're hot, you're hot
The fast-casual dining segment Chipotle popularized is one of the few niches that's grown through good times and bad, spawning an ever-widening list of imitators that give consumers a choice of healthy dining options. And when it comes to Mexican and Tex-Mex meals, consumers can choose between Del Taco, Moe's Southwest Grill, El Pollo Loco, and U.S. Taco Co., to name a few.
Yet none of those approach Chipotle Mexican Grill in size, sales, or industry impact. Revenues at the chain jumped 28% last year to $4.1 billion as same store sales, or those that strip out the effects of opening new restaurants, grew almost 17% year over year.
But despite its exponential growth over the years, Chipotle still isn't top dog when it comes to Mexican food. There is someone bigger, one that's perhaps just as potent, and equally responsible for fundamentally altering the quick-serve dining landscape.
Top dog in food to go
Since 2004, QSR Magazine has been tracking growth of the limited-service restaurant industry and naturally McDonald's has long been the biggest, most influential chain. It operates more than 36,000 restaurants in over 100 countries, and employs some 420,000 people. Last year it generated over $35 billion in annual systemwide revenues.
But when it comes to Mexican food, there's one restaurant that beats them all: Taco Bell.
Owned by Yum! Brands (NYSE:YUM), which also operates the KFC chicken joint and the Pizza Hut pizzeria, Taco Bell is the top chalupa when it comes to American-style Mexican cuisine.
Sixth overall on the QSR Top 50 list with 6,200 locations in 21 countries and about a third of the employees of the Golden Arches at the end of 2014, Taco Bell generated almost $8.2 billion in systemwide sales last year, or an average of $1.4 million per restaurant. Of course, Chipotle Mexican Grill does squeeze out more sales per restaurant, averaging almost $2.5 million per unit.
So what has been Taco Bell's formula for becoming the leading Mexican food chain?
A familiar path to growth
Partially it's a result of being first to market. The roots of Taco Bell extend back to just after World War II when Glen Bell started Bell's Burgers and launched a friendly rivalry with a couple of guys named McDonald. But as burger competition intensified, Bell branched out into tacos, creating the first fast-food hard-shell tortilla that's since become the chain's signature. Tacos became an instant success for the burger shop.
At the suggestion of a friend, Bell combined the popular food item with his last name and Taco Bell was born. In 1970 the company went public and was bought out by PepsiCo in 1978. Almost 20 years later, the beverage giant spun off its restaurant business into Yum! Brands, and the Mexican food joint is one of the restaurant operator's most successful chains.
One hot tamale
Taco Bell's revenues rose 9% over the first six months of 2015 with comparable store sales 6% higher as its introduction of a breakfast menu shows it continues to make a difference in the quick-serve industry.
According to Bloomberg News, the breakfast daypart the Mexican chain launched last year already accounts for about 6% of Taco Bell's overall sales.
The only reason Yum! Brands isn't doing better is because of a food quality scandal in China that hit its KFC chain, the second such scandal in as many years. With China still accounting for more than half of total revenue and a third of its operating profit, it dwarfs the contribution Taco Bell makes to the company.
But not a tasty morsel yet
Yum! Brands trades at 38 times earnings, 19 times next year's estimates, and some two-and-half times sales. Its enterprise value goes for more than 40 times its free cash flow, suggesting its stock is still richly valued.
But with a rich history, successful menu innovation, and a goal of being the fast-food restaurant of choice for millennial consumers Taco Bell seems poised to remain atop the list of top Mexican food restaurants.