Chipotle Identifies The Next Big Thing In Fast Casual Food: Burgers, Fries, & Shakes?

Is there a bubble in fast casual restaurants in the United States? More specifically, is the burger chain craze starting to look a little frothy? Chipotle Mexican Grill (CMG) announced this week that it is launching Tasty Made in Ohio, a new chain focused on burgers, fries, and shakes. They must see burgers as being an underpenetrated market that they can exploit with their simplified, customizable fast casual concept (he writes sarcastically).

In reality, the burger space is getting very crowded, very quickly. For those chains with grand expansion plans I would be careful. For the commercial real estate developers who continue to build higher end, mixed use buildings with the expectation that they can quickly secure leases with fast casual chains due to their ever-growing desire to blanket the country, I would be careful. I don’t know when we will reach oversaturation in the fast food/fast casual restaurant segment, but we will. The population is simply not growing fast enough (less than 1% per year) to support high sales volumes and profit margins at all of these locations.

This move by Chipotle is a bit odd considering the competition. In contrast, the company’s ShopHouse Kitchen Asian concept has far less competition (Noodles & Company and that’s about it in terms of national chains) and only 15 locations nationwide. Given that Chipotle has over 2,000 U.S. burrito restaurants, coupled with the insane growth in the burger space right now, it is bizarre that they feel this is the ideal time to launch the Tasty Made brand. Not to mention that the company also has a pizza concept called Pizzeria Locale with less than 10 locations open or under construction.

Ironically, Chipotle’s relentless focus on simplicity in its restaurant operations does not seem to be spilling over to the company’s growth plans at the corporate level. With average unit volumes down 20% at the namesake brand, the company has a lot of work to do. The competition is intense already and adding new concepts in crowded sectors of the market seems like a questionable decision at this point in time. The high valuation on the stock right now is already a red flag, but now investors might start to question management’s game plan.

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Dhaval Shanischara 2 years ago Member's comment

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Somesh Ramnani 2 years ago Contributor's comment

I like how they're trying to expand their realm of "products" to try to increase job opportunities/ boost the economy but I think it's just too much at this point. $CMG