Garmin Ltd. (GRMN), Apple Inc. (AAPL), Chipotle Mexican Grill, Inc. (CMG): A Game of Inches and Portion Sizes

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I’d like to see Chipotle take some of the qualities of a McDonald’s Corporation (NYSE:MCD). Instead of having one very long line that everyone must go through, perhaps have 2 separate lines differentiated by burrito or bowl for example. Improve the menu with portion sizes so that people won’t have to ask for more of something and they will know exactly what they are getting. I also often see people ordering the same exact item receiving varying amounts of the same ingredients. It really is an inconsistent process.

It all goes back to margins. If it can be assumed that there will remain just one line, and that each order takes a predetermined minimum amount of time, then one of the best ways to increase margins is to sell more to each person with portion sizes. The servers need to be paid regardless so why not make each sale worth more? Specifically create a pricing system like any other establishment where smaller portioned items generate slightly more profits thereby encouraging people to order more in bulk. The idea is to create a clear distinction in options and maximize returns. Profit margins can’t drop too much further as they are already well behind McDonald’s Corporation (NYSE:MCD). The past five years, Chipotle has averaged just 8.87% while McDonald’s has an industry leading 19.94% in profit margins. Even worse is that while McDonald’s margins are steady, Chipotle Mexican Grill, Inc. (NYSE:CMG)’s are declining.

MCD Profit Margin Quarterly data by YCharts

Bigger Is Better

The growing trend in screen sizes of smartphones I believe will only help Garmin in the long run. There will be a breaking point when consumers prefer smaller screens, more portability, and thinner devices for their phone use. This will push back market share towards companies like Garmin. If things do go south in the standalone GPS market for automobiles, Garmin Ltd. (NASDAQ:GRMN) still has a lot of room to grow in other GPS applications – specifically fitness.

Bigger portion sizes and larger menu choices will allow Chipotle Mexican Grill, Inc. (NYSE:CMG) to increase their margins in order to benefit the company for years to come. Their 1,400+ restaurants locations are preventing them from maximizing profits under their current business model. While they grow towards a comparable model like that of Subway, which operates a similar one line system under its 37,000+ locations, they will need to modify their menu in some way to address the declining margins that are now on the minds of Chipotle investors.

Michael Carter owns shares of Apple. The Motley Fool recommends Apple, Chipotle Mexican Grill, and McDonald’s. The Motley Fool owns shares of Apple, Chipotle Mexican Grill, and McDonald’s.

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