1 Tasty Reason for Chipotles Huge Success
The popular Tex-Mex chain is proving that even restaurants can find ways to innovate.
A winner that probably no one saw coming over the past two years has been Chipotle Mexican Grill (CMG 0.01%). Thanks to a strong digital presence, the company has continued to post double-digit same-store sales growth while also opening new locations at a healthy clip. And shares are up more than 200% since bottoming out when the pandemic first hit in March 2020.
Chipotle's simple yet tasty menu is a big part of the reason the chain has been so successful. But from a customer perspective, the convenience and value proposition is also unmatched. A recent announcement proves the business and its management can still find new ways to keep loyal fans coming back for more.
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Even restaurants can innovate
Chipotle announced it would begin offering pollo asado to its menu in the U.S. and Canada. In its 29-year history, this is the first time the business has added a new chicken offering.
'Chicken is easily our most popular protein with many of our most loyal Chipotle customers ordering it the majority of the time,' Chief Marketing Officer Chris Brandt highlighted in the recent press release.
Test results at select stores in Cincinnati and Sacramento were extremely positive. Customer feedback and sales of pollo asado were similar to the limited-time brisket offering, which was Chipotle's best-selling menu introduction in recent years. That's a great sign for pollo asado's prospects.
This tasty development shows even companies in the restaurant sector can find ways to innovate. In Chipotle's case, new menu items like this one can have a profound impact on engaging existing customers and attracting new ones. The menu might be simple and focused, but Chipotle has shown that it can shake things up quite well.
CEO Brian Niccol previously held the same role at Taco Bell, and in that position, he similarly oversaw new menu introductions for the fast-food chain, so it's no surprise he's bringing some of that expertise to Chipotle's operations. Since Niccol took over leadership at Chipotle in March 2018, its shares have skyrocketed almost 400%.
Navigating the inflationary environment
The current economic situation, characterized by soaring inflation and a tight labor market, has hit restaurants particularly hard. Even Chipotle, regarded as a leader in the cutthroat industry, isn't immune to these issues. Fourth-quarter adjusted earnings per share of $5.58 exceeded Wall Street estimates, but rising beef, avocado, and freight costs resulted in Chipotle's 8.6% operating margin coming in far below the previous three quarters.
But by continuing to introduce new menu items, Chipotle is finding ways to keep its customers excited and coming back for more. Furthermore, it gives the business an opportunity to raise prices. The new pollo asado entrees will cost an average of $9.11 in the U.S., $0.65 more expensive than the regular adobo chicken. Shareholders should appreciate this proven pricing power as it gives management another lever to help drive sales growth.
Compared to last year, customers are paying about 10% more for their food orders due to strategic price hikes management has implemented. Revenue in 2021 was 26.1% higher than in 2020, demonstrating resilient demand for Chipotle's offerings. There are likely even more opportunities to increase prices should inflation stay elevated in the near term.
While Chipotle stock is expensive and priced for perfection with a price-to-earnings ratio of 68, this is a high-quality business that investors should keep on their watch lists.