There’s more to the question of whether Taco Bell, with its long-held self-promoted reputation for cheap fast food, even appeals to Chipotle’s target market. Chipotle’s popular for the “Chipotle Experience,” which includes its restaurants’ open kitchens, customizable menu items, stimulating aesthetics, and upbeat music.
During the lunch and dinner rush, Chipotle’s packed with young professionals, families, and couples on dates. Taco Bell offers a drive-through, which Chipotle does not, but the latter’s customers appear to enjoy taking their time eating. Yum! Brands, Inc. (NYSE:YUM) and Chipotle are not alike enough to threaten each other’s core business, so both may fare as good investments.
A more realistic competitor for Chipotle is Panera Bread Co (NASDAQ:PNRA). Panera offers meat of similar quality to Chipotle, although it does not source a sizeable portion of produce from local farms as Chipotle does. But Chipotle and Panera Bread Co (NASDAQ:PNRA) share many customers who seek out these restaurants’ food for overall taste moreso than sustainability.
Panera’s profits stand as more vulnerable than Chipotle to Americans’ latest health fads: vegetarian, lactose-free, and gluten-free diets. Chipotle offers customizable dishes, gluten-free burrito bowls, and includes “Vegetarian” as one of five menu options, while Panera’s products are less so and more meat, dairy, and bread-intensive.
One in three American households now have at least one gluten-intolerant member, so these affected families and other dieting customers may dine at Chipotle over Panera by default. Of course, Panera still stands to grow plenty from mainstream patrons’ business. Panera and Chipotle could both prove good investments as consumers vary where they dine.
Looking Ahead: ShopHouse and Supply Chains
Many point toward Chipotle’s emerging sister chain, ShopHouse Southeast Asian Kitchen (which currently has two locations, in California and Washington D.C.), as the company’s promising hope for future expansion and profitability. That hope may take a while: ShopHouse will build its brand using the same high-quality food as Chipotle, so a rapid chain expansion could further stress Chipotle’s supply chain in the short term.
More important for the long view, though, is why Chipotle’s facing supply chain issues, competitors’ emulation, and price squeezes; it’s a revolutionary company. No fast food company has committed to food standards like Chipotle has — and customers have responded with unforeseen gusto. In a few years’ time, with proper management and strategy, CHIPOTLE-nomics may prevail — and then Chipotle’s prospects, along with those of Shophouse SE Asian Kitchen, will look tasty indeed.
The article CHIPOTLE-nomics: A Short-Term Supply Struggle originally appeared on Fool.com and written by Glenn Singewald.
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