Chipotle Explores New Asian Food Concept
Chipotle (NYSE:CMG) opened ShopHouse Southeast Asian Kitchen, its first Asian restaurant, in Washington DC. It looks like Chipotle is interested in diversifying, or at least experimenting, with the growing demand for popular Asian dishes that include Banh Mi sandwiches and rice or noodle bowls. According to Technomic, sales at limited-service Asian restaurants grew 5.9 percent in 2010, faster than any other menu category. This year, Technomic expects sales at Asian dining spots to rise 5 percent compared to 4 percent for all limited-service restaurants. [1] Chipotle competes with mostly cheaper alternatives in the fast food industry such as McDonald’s (NYSE:MCD), Burger King, Pizza Hut and Papa John’s.
Our price estimate for Chipotle stock of $276 implies around a 20% discount to the current market price.
Is Banh Mi the New Burrito?
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According to Chipotle spokesman Chris Arnold, diners will have an option to choose between rice and noodles topped with ingredients such as chicken satay, tofu, pork meatballs, Chinese broccoli and eggplant. The bowls will sell for $6.50 to $7.50 compared with $7 to $8 for a burrito. The chain also will have traditional Banh Mi Vietnamese sandwiches with green papaya slaw and chopped peanuts. Entering this space puts Chipotle in direct competition with Pei Wei stores, Panda Express stores and Pick Up Stix stores that have all experienced tremendous growth in recent years.
We believe there is potential within this niche segment and that Asian casual food has been recently popularized by food trucks, dining stands and small restaurants in most major cities. Chipotle’s experience in turning popular Tex-Mex dishes like burritos and tacos into mainstream fare could translate well with these Asian dishes.
Presently there are about 14.7 million Asians in the U.S., which could help with the early adoption of Asian dishes. And while this could help support growth initially, the real potential is appealing to the same mainstream customers that visit Chipotle. This could be a difficult task and will certainly take some time, but given Chipotle’s past experience this could be achievable. [2]
Treading Cautiously at First
Given the potential, Chipotle is very cautiously testing its Asian concept. Its DC restaurant wasn’t heavily promoted and had very light traffic in its first days despite press and reporters stopping by to check out. Part of this could be Chipotle’s caution regarding the weak economy and wanting to test customers’ willingness to try new restaurants. Another concern is that if Chipotle promotes this new concept too heavily, it could cannibalize its original Chipotle restaurants.
As a result, we don’t see this moving the needle in the short term and have not updated our estimates until Chipotle shows a stronger commitment to this concept or outlines its plans to investors. However, we do believe there is an opportunity here if it picks the right markets and can position the concept for further brand development and long term growth.
See our complete analysis for CMG stock here
Notes:- See: Chipotle Opens Asian Eatery in Challenge to Panda Express, Bloomberg [↩]
- See: Overview of Race and Hispanic Origin: 2010 [↩]