Why Store Expansion Is One Of The Key Growth Drivers For Chipotle Mexican Grill?
Chipotle Mexican Grill (NYSE:CMG) currently operates less than 2,000 restaurants, most of which are in the U.S., a minuscule number compared to the 35,000+ McDonald’s restaurants in 119 countries. There is tremendous growth opportunity for Chipotle to expand both domestically and internationally, and the company plans to open around 200 new restaurants each year, which would be key to this growth. The introduction of new product categories to boost existing store sales, and expansion in Asia, are some catalysts for future growth.
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Faster Expansion Pace
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In Q3 2015, Chipotle opened 53 new restaurants, taking the total to 150 for the fiscal year 2015. It also raised the full year guidance for restaurant openings from 195-205 to 215-225. An accelerated pace of expansion will have a positive impact on Chipotle’s valuation.
The company is also expanding its footprint outside the U.S. It now has 7 stores in London and 4 in Paris. There is tremendous potential for growth in international markets, given most of the other fast food chains like Yum! Brands, KFC, and McDonald’s successfully operate in thousands of international locations. According to market research company Transparency, the global fast food market is projected to reach nearly $620 billion driven by increasing demand from Asia Pacific. Huge population combined with consistently rising GDPs and increasing disposable incomes are some of the key factors driving the fast food market in this region. The markets in China, Japan, and Korea are warming up to Mexican theme-based fast casual restaurants. We believe Asia expansion will be a key growth driver for Chipotle.
Introduction of New Product Categories
Apart from traditional Chipotle stores, the company has also been focusing on its two other brands: ShopHouse (Asian theme restaurant) and Pizzeria Locale. Kansas City got its first Pizzeria Locale store, making it the second market for the brand. Chipotle plans to open two more Pizzeria Locale stores in Cincinnati in the coming few months. We believe this diversification strategy could be key for the company’s growth in the future. Chipotle recently raised its menu prices for steak and barbacoa items, and runs the risk of losing customers to competition due to premium pricing. With decelerating comp sales and intensifying competition in the fast casual restaurants space from local Mexican burrito places and players like Shake Shack and Panera Bread, adding new product categories could boost growth. Chipotle’s commitment towards quality food ingredients and using classical cooking techniques is its key differentiator, and applying this to other product categories will provide long-term growth opportunities for the company.
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