Store growth will continue to lift the sales
The company had 490 stores in 2005, and its store count increased to 1,410 by 2012. In 2013, it will be opening 165-180 new stores. In the new store openings, construction of new real estate will comprise approximately 40% of the total, and the rest will be remodeled sites. 30 stores will be A- Model locations, which have slightly low footprints and lower operating cost. The company will also open ShopHouse in the LA area, including its original unit in Washington DC. The company will open three ShopHouses in 2013 (upward revision from earlier guidance of two). The unit expansion strategy will continue to drive sales in the next two quarters.
Increased marketing spend and campaigns will be growth drivers
The company has increased its marketing budget for 2013 to 1.7% from 1.3% of sales from the last fiscal year. The marketing spend was around 0.7% of sales in 1Q13, and it will be increased to 2% in 2Q13. The “Food with Integrity” campaign will be focused on promoting naturally-raised meat and organic food. The company will focus on the traffic driving marketing campaign of “Skillfully made,” which promotes fresh ingredients and cooking by hand. The company has plans of radio advertising and outdoor print in 26 markets and for 900 across the country. Internet-based “Farmed and Dangerous” campaign and BOGOs will also add to the marketing efforts of the company.
Catering service provides an opportunity to increase customer base
In the 1Q13, the company has launched a catering service in seven of its San Francisco Bay area restaurants. This will help customers use a portable version of Chipotle Mexican Grill, Inc. (NYSE:CMG) services and smaller group meal options. Catering was introduced into four new markets: Las Vegas, Philadelphia, Wisconsin, and Nashville. It is expected to make catering nationwide for the company by the end of 3Q13. The catering segment is a huge opportunity for the company, as its peers like Panera Bread Co (NASDAQ:PNRA) and Qdoba are generating 8% and 7% of sales from catering, respectively.
Peer review
Chipotle Mexican Grill, Inc. (NYSE:CMG)’s major competitors in the high growth segment are Panera Bread Co (NASDAQ:PNRA) and Jack in the Box Inc. (NASDAQ:JACK). Panera is looking to attract customers to the stores with the introduction of a new “pasta menu” category. Apart from pasta, it has also added shrimp and salad to the menu. This new menu will be available nationwide in 2013. The company is also spending more on marketing, with an increase in marketing spend by 30% in 2013. It’s using promotional events like direct mail, loyalty cards, and social media, while promoting pasta as a dinner option to drive sales in 2013.
Jack in the Box Inc. (NASDAQ:JACK)’s stock price has increased by around 50% over the last year. Jack in the Box is looking for profitability in the future through transformation toward the franchise business model. It’s looking for operational and structural changes to suit its franchised business model. The Qdoba business division has appointed Tim Casey as a new president who will bring in the leadership experience of a high growth brand, like Starbucks Corporation (NASDAQ:SBUX), to the company. The company has outstanding share repurchase authorizations of 50 million and 100 million expiring at the end of 2013 and 2014, respectively. It’s expected to execute these programs within the time frame.
Conclusion
Chipotle Mexican Grill, Inc. (NYSE:CMG) has taken several initiatives like a catering service, new marketing campaigns, and promoting the quality of the food. Store expansion, including ShopHouse stores, will drive new store sales growth. This, combined with increased marketing spending, will be a growth driver for the company.
The industry is growing in size, with most of the companies looking for store growth and increased marketing spending for growth opportunity. Panera Bread Co (NASDAQ:PNRA) has introduced a new pasta menu category to attract customers by promoting pasta as a dinner option. Jack in the Box Inc. (NASDAQ:JACK) is moving toward a franchise business model, which is more cost efficient and will improve the bottom line. I believe there is ample upside for these companies, given the strong trend they are seeing in the U.S. and their very limited international presence. Investors looking for high growth companies should consider these stocks for investments.
The article Catering Service And Increased Marketing Will Drive Growth For This Restaurant Company originally appeared on Fool.com is written by Ash Sharma.
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