Chipotle Mexican Grill, Inc. (NYSE:CMG) is cool, but is Cool Ranch even cooler?
Yum! Brands, Inc. (NYSE: YUM) is introducing new tacos today featuring shells with Doritos Cool Ranch seasoning.
The latest entry to Taco Bell’s Doritos Locos Tacos are officially hitting the market tomorrow, but Yum! Brands surprised followers on Facebook and Twitter by alerting them that the new menu item is available today.
However, the success last year of the original Doritos Locos Tacos and the slightly more upscale Cantina Bell line appears to be having some kind of effect on Chipotle Mexican Grill, Inc. (NYSE:CMG).
Comps at Taco Bell popped 7% during the third quarter, the first period that the Cantina Bell and Doritos Locos Tacos were available for the entire quarter. Chipotle Mexican Grill, Inc. (NYSE:CMG) clocked in with same-store sales growth of just 4.8%.
Most chains would love to see a typical store ringing up 4.8% more in sales than it did a year earlier, but Chipotle investors were used to more growth than that. Things only got worse when Chipotle’s comps only rose 3.8% during the fourth quarter.
Can Chipotle Mexican Grill, Inc. (NYSE:CMG) grow faster if Taco Bell has another hit on its hands?
In theory, it shouldn’t play out that way. Chipotle is fast casual. Taco Bell is fast food. Taco Bell competes with burger joints armed with similar value menus and drive-thru windows. Chipotle’s higher-caliber food makes it more likely to lose a customer to rival fast casual darling Panera Bread Co (NASDAQ:PNRA) before it comes up short against Taco Bell.
However, the novelty of the new Cool Ranch Doritos Locos Tacos may wind up costing both Chipotle and Panera in the near term.
There may also be a more pronounced move on Chipotle’s bottom line. Revenue grew at a reasonable 17% clip in Chipotle’s latest quarter, but income only climbed 7% for the period. Chipotle argues that it didn’t raise prices quickly enough as commodity costs inched higher, but could it also be that Chipotle was afraid to tweak its menu with higher price points given Taco Bell’s thriving at the low end?
We may never know. However, Chipotle better hope that it doesn’t post disappointing comps in the coming quarters. Given the stock’s lofty valuation multiples, it better prove that it’s the one that’s cooler than Cool Ranch.
The article Taco Bell’s Smearing Chipotle With Cool Ranch originally appeared on Fool.com and is written by Rick Aristotle Munarriz.
Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill and Panera Bread.
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