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Chipotle Mexican Grill, Inc. (CMG): Catering Service And Increased Marketing Will Drive Growth For This Restaurant Company

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Chipotle Mexican Grill, Inc. (NYSE:CMG)’s stock price has outperformed the broader markets in the last month. The key catalyst for this performance was better-than-expected results. Chipotle Mexican Grill, Inc. (NYSE:CMG) reported EPS of $2.45 in 1Q13, which was $0.32 more than consensus estimates. Chipotle also showed YOY sales growth of 13.45% in 1Q13. The company opened 48 new stores in the quarter. Chipotle Mexican Grill, Inc. (NYSE:CMG)’s focus is on serving high quality and healthier food to customers, and it’s taking initiatives (i.e., the “Food with Integrity campaign” and “Catering service”) to drive the sales. It is looking ahead to increase marketing spending in 2Q13 to 2% of sales, as compared to 0.7% in 1Q13. Let’s go through these key initiatives in more detail and learn what can drive sales growth and profitability for the company.
Chipotle Mexican Grill, Inc. (NYSE:CMG)

Store growth will continue to lift the sales

The company had 490 stores in 2005, and its store count increased to 1,410 by 2012. In 2013, it will be opening 165-180 new stores. In the new store openings, construction of new real estate will comprise approximately 40% of the total, and the rest will be remodeled sites. 30 stores will be A- Model locations, which have slightly low footprints and lower operating cost. The company will also open ShopHouse in the LA area, including its original unit in Washington DC. The company will open three ShopHouses in 2013 (upward revision from earlier guidance of two). The unit expansion strategy will continue to drive sales in the next two quarters.

Increased marketing spend and campaigns will be growth drivers

The company has increased its marketing budget for 2013 to 1.7% from 1.3% of sales from the last fiscal year. The marketing spend was around 0.7% of sales in 1Q13, and it will be increased to 2% in 2Q13. The “Food with Integrity” campaign will be focused on promoting naturally-raised meat and organic food. The company will focus on the traffic driving marketing campaign of “Skillfully made,” which promotes fresh ingredients and cooking by hand. The company has plans of radio advertising and outdoor print in 26 markets and for 900 across the country. Internet-based “Farmed and Dangerous” campaign and BOGOs will also add to the marketing efforts of the company.

Catering service provides an opportunity to increase customer base

In the 1Q13, the company has launched a catering service in seven of its San Francisco Bay area restaurants. This will help customers use a portable version of Chipotle Mexican Grill, Inc. (NYSE:CMG) services and smaller group meal options. Catering was introduced into four new markets: Las Vegas, Philadelphia, Wisconsin, and Nashville. It is expected to make catering nationwide for the company by the end of 3Q13. The catering segment is a huge opportunity for the company, as its peers like Panera Bread Co (NASDAQ:PNRA) and Qdoba are generating 8% and 7% of sales from catering, respectively.

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