Mexican-style takeout has been an integral part of the American dining category, at least since 1962 when Glen Bell opened the first outlet of his eponymous fast-food chain in California. The segment has benefited from growing popularity, as well as the nation’s continuously rising Hispanic population. According to the U.S. Census Bureau, Hispanic people will account for 22% of America’s population by 2030, compared to 16% in 2011. In addition, Mexican-inspired fast food can be healthy, particularly when green leafy vegetables and beans are added to the mix. So, which food chains are winning customers?
Chipotle Mexican Grill, Inc. (NYSE:CMG)
Founded in 1993, Chipotle Mexican Grill, Inc. (NYSE:CMG) has been growing very fast and taking a significant amount of market share from industry leader Taco Bell. The company redefined the Mexican food category with its “Food with Integrity” mission, which utilizes high-quality ingredients that are often purchased from organic and locally grown sources. In addition, Chipotle Mexican Grill, Inc. (NYSE:CMG)’s limited menu choices improve its scale economies, leading to higher profit margins and more cash flow for reinvestment purposes.
In fiscal year 2012, Chipotle Mexican Grill, Inc. (NYSE:CMG) continued growing at a fast pace, with increases in revenues and operating income of 20.3% and 29.9%, respectively, versus the prior year. The company’s sales growth benefited from continued expansion across the U.S., as well as a 7% gain in comparable store sales. While Chipotle experienced rising costs for labor and food commodities, it has been able to partially pass these costs on to consumers through menu price increases.
Looking ahead, Chipotle Mexican Grill, Inc. (NYSE:CMG) is expecting to add another 10% more outlets to its current base of more than 1,400 restaurants in 2013. While the company is primarily U.S.-centric, it has opened beachhead stores in select international markets that are serving as a test for future expansion in those markets. In addition, the company is sponsoring food festivals in the U.S. as a way of bonding with customers and further solidifying its rising market share.
Fiesta Restaurant Group Inc (NASDAQ:FRGI)
While Fiesta Restaurant Group Inc (NASDAQ:FRGI) is primarily a regional player, with most of its restaurants located in Florida and Texas, it has been slowly expanding into neighboring states. The company currently runs two dining concepts, its Pollo Tropical and Taco Cabana units that serve diners with Caribbean-inspired and Mexican-style food, respectively. Like competitor Chipotle Mexican Grill, Inc. (NYSE:CMG), Fiesta’s Taco Cabana unit focuses on high-quality food ingredients in an open restaurant layout, which encourages interactive between customers and servers.
In fiscal year 2012, Fiesta Restaurant Group Inc (NASDAQ:FRGI) reported marginally improved results, with increases in revenues and adjusted operating income of 7.3% and 3.0%, respectively, compared to the prior year. While the company achieved a solid 5% gain in comparable store sales at Taco Cabana, commodity cost inflation hurt its overall profitability. Fiesta was able to raise prices to offset a portion of its cost pressures, but its limited size doesn’t provide the same purchasing efficiencies that are available to its larger competitors.