Chipotle Mexican Grill, Inc. (CMG)’s an #AdGenius

Chipotle Mexican Grill, Inc. (NYSE:CMG)Oh great, those Twitter hack brigades are at it again. This time, they got to Chipotle Mexican Grill, Inc. (NYSE:CMG), with a string of cryptic tweets about avocados and how to use Twitter.

It’s a clever stunt, but there was just one thing wrong about that: it was a fake hack all along.

It was a marketing stunt by Chipotle Mexican Grill, Inc. (NYSE:CMG) to draw attention to its 20th anniversary scavenger hunt for prizes and giveaways, and it resulted in 1,500 retweets, as well as increasing the amount of followers to Chipotle’s twitter page. It’s clear that this was a successful advertising ploy by Chipotle, and also shows how advertising and marketing has come of age through social networking in terms of reach and cost.

Push the product, save on ads

To give the long and short of Chipotle Mexican Grill, Inc. (NYSE:CMG)’s marketing strategy: it’s about highlighting how unique the company is in its products, as well as allowing word of mouth advertising and social media to do the heavy lifting. Its main tool of marketing is that Chipotle prides itself in natural, fresh ingredients, as well as using internet social platforms, like Facebook Inc (NASDAQ:FB) and Twitter, to spread the word. Its Twitter page has over 230,000 followers, while its Facebook page has over 2 million likes, allowing the company to advertise with a wide range of frequent social media users for less than the cost of television advertising.

As a result, Chipotle Mexican Grill, Inc. (NYSE:CMG)’s advertising budget is low compared to its competitors and dropping. In 2011, the company spent a mere $6 million in advertising, a 20% drop from the previous year. To put that into perspective, Taco Bell, a competing Mexican restaurant chain, spent nearly $250 million in advertising in the US alone. This is because Taco Bell relies more on television advertisements than Chipotle, which has cut into its operating profit margins.

Taco Bell: Got the followers, need the tweets

Chipotle Mexican Grill, Inc. (NYSE:CMG), according to its 2012 earnings report, grew its operating profit by 30%, while Taco Bell only grew by 8%. While this may be due to Taco Bell not being a standalone company (it is owned by Yum! Brands, Inc. (NYSE:YUM)), and having less room for profit increases, it does show that a smaller company like Chipotle can compete vigorously with an international brand like Taco Bell by keeping advertising budgets small, and using social media more aggressively.

At last count, Taco Bell may have three times the Twitter followers, but Chipotle Mexican Grill, Inc. (NYSE:CMG) has tweeted nearly 8 times more than Taco Bell. This means that Taco Bell isn’t using Twitter to its full capacity, and word of mouth isn’t getting around as much as it does for Chipotle, which may be a problem in the near future as fewer switch on televisions and switch on to Twitter.

The Starbucks of burritos?

In this manner, Chipotle Mexican Grill, Inc. (NYSE:CMG) kind of reminds me of another company that has an unconventional advertising plan: Starbucks Corporation (NASDAQ:SBUX). Unlike Starbucks’ rivals, like Dunkin Donuts, it does not have a habit of spending big on advertising.

In 2012, Starbucks Corporation (NASDAQ:SBUX) spent only $150 million on advertising, only 1.4% of its revenue, while competitors like Dunkin spend over 10 times that percentage. Like Chipotle Mexican Grill, Inc. (NYSE:CMG), it also focuses on tech savvy gimmicks, like “Daily Deals” that require email registration, or art design contests for bags of coffee. Starbucks also sponsors art shows and social charities in big cities, which puts them in the public eye to a lot of people through free local media advertising, and helps expand its social awareness niche, like how Chipotle uses its fresh, environmentally responsible ingredients in its advertising.

Starbucks Corporation (NASDAQ:SBUX) rarely runs TV commercials hawking the store, except during holiday seasons, but when it does promote, it highlights the fair trade, environmentally friendly coffee beans that are used in single-cup machines and sold in stores. Like Taco Bell, though, Starbucks’ size doesn’t lead to the huge percentage point shifts in sales figures like Chipotle Mexican Grill, Inc. (NYSE:CMG), but Starbucks does show that you don’t need a big expensive advertising budget to show off to customers.

The wrap-up

The future of online advertising looks bright, reading Facebook Inc (NASDAQ:FB)’s second earnings reports that sent the stock close to its IPO launch price for the first time since it went public. Advertising sales globally increased to $1.6 billion from over 1 million companies, mostly local stores in given areas, roughly $1,600 per company, or less than $140 per month. Of that, $721 million comes from the US and Canada, which may be a flatter region than Asia, which grew at a faster pace, but it highlights how much profit can be made by reaching out to customers through social media, and for a small price compared to TV airtime even in local markets. With 41% of advertising sales coming from mobile advertising, the need to get to customers’ phones is important.

For Chipotle Mexican Grill, Inc. (NYSE:CMG), Facebook Inc (NASDAQ:FB) and Twitter have been the crux of the company’s advertising strategy. As long as Facebook and Twitter users still chime in regularly, it will help any company wishing to cash in do so, which bodes well for the rise of organic, socially conscious eating establishments like Chipotle and Starbucks Corporation (NASDAQ:SBUX) that have been growing in popularity recently.

By cutting advertising costs by switching to social media, it allows for the 23% increases in sales that smaller businesses need to stay competitive, and keeping costs down helps profit margins out. Expect bigger competitors like Taco Bell to boost its social media presence as well, since TV is becoming an outdated advertising method, as well as an expensive one. Chipotle Mexican Grill, Inc. (NYSE:CMG) has been a success in this field, and they are clearly a trend setter in this operation.

The article Chipotle’s an #AdGenius originally appeared on Fool.com and is written by John McKenna.

John McKenna has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican (NYSE:CMG) Grill, Facebook, and Starbucks. The Motley Fool owns shares of Chipotle Mexican Grill, Facebook, and Starbucks. John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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