Millennial Target: Chipotle Has Fresh Appeal. On the company’s third-quarter earnings calls of 2014, then-CEO Steve Ells had stated that Chipotle’s customers are Millennials who would “skip fast food in favor of restaurants like Chipotle.” Chipotle credits Millennials, who prefer quality over price, for the company’s high same-store sales growth over fast-food restaurants such as McDonald’s, KFC (under the umbrella of Yum! But first, I’ll explain why Chipotle Mexican Grill’s same-store sales have been increasing. Chipotle considers their company to be in the “business of good food” they like to keep their menu limited so that it can be perfected and simplistic for their demographics. Email Chipotle, contact about restaurants, feedback, comments, food, becoming a supplier, philanthropy. What other specific retailers do Chipotle shoppers visit? A customer can order a classic pizza or build one. Chipotle Mexican Grill is still growing without taking on any debt. But it closed these restaurants in March 2017. Restaurants, grocery stores and food manufacturers are catching on that Millennials are into food. Analysts’ consensus price target stands at $851.36, which implies a 12-month return potential of 4.4%. And all these initiatives have led to Chipotle delivering strong same-store sales over the last few quarters. The customer starts by choosing a red or white base. Revenue is the top line item on an income statement from which all costs and expenses are subtracted to arrive at net income. The casual dining restaurant concept includes restaurants such as Olive Garden, under the umbrella of Darden Restaurants (DRI), and Chili’s, under the umbrella of Brinker International (EAT). Strong growth, at 13.9%, in Chipotle’s revenue for the first three quarters of 2019 drove the company’s net margins. But how is Chipotle’s advertising different than other restaurants’? Let’s focus now on Chipotle’s occupancy costs and general and administrative or G&A costs. What day of the week are shoppers visiting Chipotle? Meanwhile, 17 analysts have a “hold” rating while three analysts have a “sell” rating. To learn more about how traffic and ticket impact same-store sales, see What Drives Restaurant Same-Store Sales? Chipotle Mexican Grill claims that it sources 100% of its pork and beef from producers who raise the pigs and cattle outside. I'd like to just say that I absolutely love the food and service at Chipotle. But bear in mind that these companies actively franchise their restaurants, and Chipotle Mexican Grill does not. Due to the disruption from food safety concerns, CMG’s correlation between unit growth and revenue has fallen to 17%. Wage inflation was one of the main reasons for higher labor costs. Chipotle Mexican Grill has suffered due to its E Coli crisis—but now the company is back on top, according to a consumer survey. To invest in several restaurants, consider a broader portfolio such as the Standard & Poor’s depositary receipt (or SPDR) S&P 500 ETF (SPY). However, in the first three quarters of 2019, CMG has shown significant improvement in its operating margins. If the company can generate returns higher than interest rates, financial leverage would be good for the company. After tasting success in its first restaurant concept, Chipotle Mexican Grill, Chipotle had introduced two more concepts and two new types of cuisine. But Niccol, with his focus on five key strategies, has managed to turn things around. This metric, the average customer spend, is a key driver of Chipotle’s valuation. We’ll discuss unit growth in more detail later on. Demographic. In the above chart, you can see that Chipotle Mexican Grill stock has underperformed its peers since the beginning of 2015. Chipotle believes that using this technique produces better tasting, healthier meat. Chipotle’s second new concept is Pizzeria Locale, which serves—you guessed it!—pizza. However, Chipotle’s revenue grew at a lower CAGR of 5.7% in the last five years due to a series of food safety issues that the company had to face since December 2015. The restaurant first opened in 1993 and currently has over 1700 stores in … Chipotle’s marketing strategy TV ad Even Chipotle’s first national TV ad wasn’t traditional by any means. Expenses relating to corporate restructuring, annual bonus programs, and biennial all-managers’ conference expenses took the blame for the increase in G&A expenses in 2018. The vertical bars indicate the expenses in millions over the last five years, and the horizontal line indicates these costs as a percentage of sales. If you had invested $1,000 in Chipotle at the beginning of 2015, you’d have earned 19.1% returns as of December 13. That year, the company’s operating margin was 5.3%, down from 6.0% year-over-year. From the above graph, we can see that Chipotle’s cost of food has increased in 2018 to $1.6 billion from $1.54 billion in 2017. Chipotle has more than 80,000 employees. Mothers are clearly a large demographic of Chipotle’s followers. They have a variety of toppings available, not unlike the format of Domino’s Pizza (DPZ), Papa John’s (PZZA), and Yum! In the chart below, you’ll see that Chipotle’s net profit margin took a dive in 2016 due to its food safety struggles. As of December 13, Shake Shack was trading at $58.99. Eventually, Willie’s conscience convinces him to revert to more humane, sustainable operations. In comparison, Shake Shack’s food and paper costs stood at 28.3% of its company-owned restaurants’ sales in 2018. But let’s go over the main financial activities driving Chipotle restaurants. As America’s largest purchase panel, we capture 1 in every 500 shopping trips. Same-store sales are a function of traffic and ticket. Most of the restaurants are in the United States, with a few in Canada, the United Kingdom, Germany, and France. Chipotle has recently found a primary customer segment in millennials. These cows have access to the outdoors and have a pasture-based diet. Many of these – people consider cooking a hobby, and will make a majority of their meals from their own kitchen, specifically using fresh foods and healthy meals. This approach means Chipotle sources its meats from producers with animals that aren’t given antibiotics or growth hormones. Let’s take a closer look. This strategy, in turn, will grow same-store sales at Chipotle’s restaurants. By the end of the third quarter of 2019, the company had cash and cash equivalents of $815.4 million. The above chart compares same-store sales growth to revenue growth. Restaurants such as McDonald’s, Burger King, and KFC have a high restaurant count. In Chipotle's third-quarter earnings calls, the CEO said Chipotle's customers are Millennials who would “skip fast food in favor of restaurants like Chipotle.” He emphasizes visibility, strong culture, leveraging digital advancements, engaging with customers with loyalty programs, and innovating new menu items. The above chart analyzes Chipotle’s food, labor, and other costs. Our research shows that 85% of 20-24 year olds visit a sit down casual restaurant at least once a month and 48% visit a ‘fine dining restaurant’ (defined as entrees of $20 or more) at least once a month. An In-Depth Overview of the US Restaurant Industry, series of food safety issues that the company had to face since December 2015. America’s largest, most representative purchase panel, All retail channels from Bodega to Big Box to Ecommerce, Purchase triggered surveys link behaviors and attitudes, On-demand access to purchase data, updated daily, Numerator is trusted by America's leading brands, retailers and agencies. So sales leverage lowered the cost as a percentage of CMG’s total revenue. Earlier, the company operated 15 ShopHouse Asian Kitchen restaurants. Over the past ten years, Chipotle Mexican Grill’s revenues grew at a 13.5% compound annual growth rate (or CAGR). However, a series of food safety issues caused Chipotle to fall out-of-favor with customers. These costs accounted for 14% of the company’s revenues in 2018—a fall from 14.6% in 2017. In September 2018, Chipotle had launched For Real, an integrated marketing campaign that focuses on the company’s use of real ingredients. Chipotle Mexican Grill annual/quarterly revenue history and growth rate from 2006 to 2020. This figure is also an improvement from 4.0% in the corresponding quarters of the previous year. Chipotle Mexican Grill, Inc. (/ tʃ ɪ ˈ p oʊ t l eɪ /, chih-POHT-lay), often known simply as Chipotle, is an American chain of fast casual restaurants in the United States, United Kingdom, Canada, Germany, and France, specializing in tacos and Mission burritos that are made to order in front of the customer. Originally published in December 2014 by Adam Jones, this post was extensively updated in December 2019 by Rajiv Nanjapla. how food is raised and prepared to how it tastes. The company offers catering services in addition to on-premise selling at its restaurants. And we’ll also look at what getting food from sustainable sources means for CMG investors. Both marketing segmentation and targeting go hand in … Chipotle Mexican Grill operates only under the company-operated model, which means the company doesn’t franchise its restaurants like McDonald’s does. Chipotle headquarters are located at … In the first nine months of 2019, the company net-added 55 new restaurants. So what kinds of customers is Chipotle targeting with these marketing and advertising campaigns? So what’s driving the high growth for restaurant companies like those mentioned above? The franchisor—such as McDonald’s, Burger King, or Yum! In other words, CMG has no debt. Having a lackadaisical approach towards discrimination or harassment, racial or other, would not make much business sense with this demographic. A fast-casual restaurant is a fusion of the fast-food concept and the casual dining restaurant concept. It featured a brief preparation of Chipotle’s ingredients, how its farming partners harvest and delivery the company’s real ingredients, and the impact that Chipotle had on the lives of its employees. However, as a percentage of sales, the company’s food cost has declined from 34.3% to 32.9%. From the above graph, you can see that the company’s operating margin has declined significantly from 17% in 2015—before food safety concerns struck the company. It’s possible some customers simply hadn’t heard of … Let’s look now at how Chipotle is funding its unit growth without incurring any debt. Transfer Agent Contact EQ Shareowner Services 1110 Centre Pointe Curve, Suite 101 MAC N9173-010 Mendota Heights, MN 55120 1-855-598-5490 www.shareowneronline.com. Nevertheless, Chipotle stock has delivered strong performance over the last two years. Chipotle Mexican Grill is a fast casual Mexican restaurant chain founded by Steve Ells in 1993. It used the same assembly-line format as Chipotle Mexican Grill. In the 12 months leading up to September 30, 2019, the company had revenues of $5.4 billion, which grew 13.1% year-over-year from $4.8 billion. Shake Shack had a total debt of $20.8 million at the end of 2018 while Potbelly Corporation had no debt. Also, we’ll see how they impact CMG’s operating income and margins. However, McDonald’s revenue has fallen at a CAGR of 4% due to its refranchising strategy. Chipotle Market Segmentation and Product Strategy Introduction Chipotle Mexican Grill is one the fastest growing restaurant businesses in the United States. Now, since its food safety issues, the company has slowed down its expansion plans. Brian Niccol joined Chipotle in February 2018, when the company was going through a rough period after the series of food-safety issues. And through the franchise model, a restaurant can grow faster. Chipotle’s peer McDonald’s had a debt of $31.1 billion in 2018, while Yum! It featured Willie Nelson telling a two-minute animated story of a farmer whose business grows massive. However, the majority of the company’s revenues comes from Chipotle Mexican Grill itself. The company sources its cheese and sour cream from cows that don’t receive the recombinant bovine growth hormone (or rBGH). What other retail channels do Chipotle shoppers visit? Conflicts of interest may take form in multiple ways, but the premise behind them is the same. However, the sales leverage from positive SSSG offset some of the increases in labor costs. And this factor lowers its working capital requirements because the company can quickly turn over these ingredients and receive cash from customers. There may be two brands under the Chipotle Mexican Grill (CMG) banner. The company is actively spreading its sustainability message through advertising and marketing campaigns. Shake Shack (SHAK) went public in January 2015 at an IPO price of $21. For the period, the company reported an operating margin of 8.3%, versus 6.0% in the corresponding quarters of the previous year. In the first three quarters of 2019, the company reported net profits of $277.7 million, which represents a net margin of 6.7%. A company uses target marketing or targeting, when it knows a group of people to market to. Revenue can be defined as the amount of money a company receives from its customers in exchange for the sales of goods or services. In 2018, Chipotle’s occupancy costs as a percentage of sales were 7.1% of the company’s revenue, or $347.1 million. The above chart also compares revenue growth to unit growth. For Chipotle, their ideal target market is college students and younger millennial professionals aged 18 28. Chipotle sources its capital requirements for new restaurant construction from its cash and investment balance as well as cash flows from operation. WE APPRECIATE YOUR PATIENCE AND APOLOGIZE IN ADVANCE FOR ANY DELAYS IN RESPONDING TO YOUR MESSAGE. In October 2019, Chipotle signed the European Chicken Commitment. Investors can also find some of these restaurants in the SPDR S&P 500 ETF (SPY). Of the 35 analysts who follow CMG stock, 15 analysts have a “buy” rating as of December 13. In comparison, Chipotle’s peers, Shake Shack, McDonald’s, and KFC under the umbrella of Yum! Chipotle Mexican Grill is scheduled to report its fourth-quarter earnings of 2019 on February 4. For example, it established the Chipotle Cultivate Foundation, which aims to grow food “without exploiting the farmers, the animals or the environment.”. Chipotle Mexican Grill states that a portion of its beans is organically grown. Chipotle Mexican Grill serves burritos, burrito bowls, tacos, and salads. The company reported strong SSSG for the first three quarters of 2019, with the latest quarter coming at 11.0%. There is no average quick-service customer. Brands), and Burger King (of Restaurant Brands). The company expects to meet its capital requirement for expansion, maintaining and refurbishing its old restaurants, repurchasing shares, and general corporate purposes through already available cash and cash from operations. Under Niccol and CMO Chris Brandt, Chipotle has shifted much of its marketing, pushing delivery and advertising much more on national television. The company had opened 15 restaurants. Chipotle brand loyalist were the least likely to reduce or eliminate their Chipotle purchases meaning infrequent and less loyal customers were more likely to be affected by the crisis. From last year, the company’s labor cost has increased from 26.9% to 27.3% of total sales. But you should note that Chipotle doesn’t have any interest expense. Who is shopping at Chipotle and what are they like? And that trend makes you wonder how CMG is growing restaurant units. This emphasis includes items Chipotle sources within 350 miles of its restaurants. It follows that the chain should offer coupons like BOGO deals and free chips to keep the moms coming back. In comparison, McDonald’s and Darden Restaurants have spent approximately 2.9% and 3% of their revenues on advertising and marketing campaigns. WE'RE EXPERIENCING LONGER-THAN-USUAL RESPONSE TIMES DUE TO COVID-19 . She believes the U.S. has become such a melting pot of age, race, and other demographics spread out across disparate regions that fast-food operators have no way of singling out any one typical, everyday customer. Chain’s former visitors scattered to a variety of quick service or fast casual outlets, finds NPD Group’s Checkout Tracking SM. So Chipotle Mexican Grill’s advertising has been able to drive customers into its doors. Brands—collects the royalties and fees. Earlier in this post, we saw that Chipotle doesn’t franchise. Published by Statista Research Department, Jun 20, 2019 This statistic presents the share of Americans who visited Chipotle in the past 3 months in 2018, by age. But let’s turn now to how Chipotle sources its meat ingredients. Chipotle is spreading the message by running several advertising and promotion campaigns that overlap with the company’s philanthropic efforts. Chipotles core customer demographic values social equality and integration. You can immediately see that they move almost in conjunction, with a high correlation of 0.93. Then, in 2016, it increased its units count by 240 units. Numerator Insights are powered by the InfoScout Omnipanel. Since Chipotle has no debt, investors can claim the company’s profits without worrying about debtholders. Labor, Chipotle’s second key operating cost, represented 27.3% of the company’s total revenues, or $1.33 billion, in 2018. Occupancy costs as a percentage of sales fell from 7.3% in 2017. Also, the company launched similar marketing campaigns in the past. To educate its customers about its ingredients, Chipotle had launched Behind the Foil, a documentary-style advertisement for both television and digital channels, in February 2019. ... hopes both to target a demographic that … One of Chipotle Mexican Grill’s new concepts is ShopHouse Southeast Asian Kitchen, which served southeast Asian cuisine. When a restaurant has reached maturity, its revenues are growing at a stable low single-digit rate. www.chipotle.com. And in 2018, CMG net-added 83 new units. So what’s Chipotle Mexican Grill doing differently to attract more customers? In October 2018, the company launched “Chipotle Rewards,” a loyalty program. The best clue came in 2016, when Chipotle had a Reputational Quotient (RQ) score of 71, far higher than McDonald’s 65.78. Now let’s look at Chipotle Mexican Grill’s stock performance over the last few years and see what Wall Street analysts’ estimates are for the company’s key metrics. The fast-food concept includes iconic restaurant brands such as McDonald’s (MCD) and Yum! However, leverage can drive your return on equity. But there are some downsides to the company-operated model as well as the franchise business model. To learn more, check out An Overview of the US Restaurant Industry. To read more about Chipotle’s third-quarter SSSG of 2019, check out Chipotle Crushed Q3 Earnings: Stock a ‘Buy’ on Dips? Moms. Chipotle’s other operating costs include advertising and marketing expenses, bank and credit card charges, restaurant maintenance costs, and utilities. When a company franchises its restaurants, it doesn’t need to invest its capital in property, furniture, signs, labor, and other restaurant-related operating costs. Meanwhile, Burger King, has more than 18,232 restaurants. For other inquiries, concerns or comments, visit our Talk to Us page at: CHIPOTLE.COM/SPEAK. Most of the company’s restaurants are Chipotle Mexican Grill, but Chipotle also operated two Pizzeria Locale restaurants as of the third quarter of 2019. Chipotle Mexican Grill Inc , Total Quarterly Segment Results, Source of Revenue and Income The above chart shows the relationship between Chipotle Mexican Grill’s unit growth and revenue growth. By the end of the third quarter of fiscal 2019, the company operated 2,546 restaurants. Millennials are the generation born between 1982 and sometime in the early 2000s. Recently the company launched a “Mom’s Valet” service “which allows young mothers to order food at a drive-thru, and then eat inside at a reserved table.” Families. The company also operates two Pizzeria Locale restaurants. Find out how Numerator can help elevate your top line. Also, analysts are expecting the company’s adjusted EPS to rise 56% to $2.68. When same-store sales are growing, each of Chipotle’s existing restaurants is attracting more customers year-over-year. In 2018, CMG reported an operating income of $258.4 million. And when that happens, a company can supplement its revenue growth by adding more units in newer, untapped markets or locations. Chick-fil-A understands that moms are often decision-makers when it comes to family meals. 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