Yum! Brands, Inc.(YUM): The Rise of Doritos Locos Tacos is Bullish for Chipotle Mexican Grill, Inc. (CMG)

Chipotle is, to some extent, a play on the increasing popularity of organic food. All of Chipotle’s menu items are made with locally-sourced, organic ingredients. Taco Bell is about the furthest thing from organic food. The company has long dodged accusations that its beef is of dubious origin. Now, with an advertising campaign centered around a taco built from Doritos chips, Taco Bell is only distancing itself further from a large segment of Chipotle’s customers.

It’s tempting to think of markets in turn of winners and losers. But sometimes, that isn’t the case. Frequently, multiple companies can occupy a similar segment of the market and still thrive. Take McDonald’s coffee initiative. When the Big Mac-maker started setting up cappuccino machines in its stores, a few investors became alarmed that it could be bad news for Starbucks Corporation (NASDAQ:SBUX). But now, years later, Starbucks continues to be as successful as ever, while McDonald’s McCafe line has been an area of growth for the company. In the end, the premium coffee market proved large enough to accommodate both companies.

Buy or sell Chipotle Mexican Grill, Inc. (NYSE: CMG)?

As I mentioned, Chipotle’s valuation seems excessive, but investors shouldn’t short it simply because they fear Taco Bell encroaching on its territory.

The Cantina menu could augment Taco Bell’s offerings, but the company continues to live on menu items like the Doritos Locos Taco. The taco has been unquestionably popular, but it continues to reinforce Taco Bell’s image as a cheap, late-night fast food joint.

As long as Taco Bell is viewed in that light, it won’t be able to win away a meaningful percentage of Chipotle Mexican Grill, Inc. (NYSE:CMG)’s customers. At the same time, like McDonald’s and Starbucks, the demand for premium Mexican fast food could be significant enough to accommodate a variety of competitors.

The article The Rise of Doritos Locos Tacos is Bullish for Chipotle originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

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