This is exactly the kind of innovation that should work. Adding a twist to existing offerings can make the fare much more interesting without too many teething issues. And not to mention that the drink priced at $6.50 to $8 depending on where you are placing the order, should add to the bottom-line as well.
Chipotle is also planning to add a new vegetarian option in the form of Sofritas or spicy tofu and is aggressively testing this out. It launched the Sofritas in San Fransisco in February and currently testing the item in Northern California.
Given that the company so far had only black beans burritos as a vegetarian protein option this new addition should nicely round up the menu offering.
Competitive pressures
Chipotle typically goes neck to neck with Qdoba Mexican Grill, owned by the hamburger chain Jack in the Box Inc. (NASDAQ:JACK). Both restaurants operate in the fast casual space and serve similar Mexican fare of burritos, tacos, salads, chips, and salsas.
They are also seeing similar trends as far as comparable stores sales go. In Chipotle’s 2012 fourth quarter which almost coincided with Qdoba’s 2013 first quarter, both chains saw comparable stores sales growth of 3.8%. Subsequently, in the current quarter Chipotle has posted 1% comparable stores sales growth while Qdoba has guided for 1-2% growth.
Despite the similar trends, Chipotle definitely has an edge over Qdoba. It has been well established that the food, service, and interiors at the former are better than the latter. In a recent report by food researcher Technomic it was held that Qdoba Mexican Grill lags Chipotle as a brand. They rank 3 and 2 respectively after Moe’s Southwest Grill which was adjudged the best fast food chain in the Mexican space.
Besides competing with each other, both Chipotle and Qdoba Mexican Grill are facing unforeseen competition from Taco Bell. With their superior quality food and well done interiors they never expected that Taco Bell could become a threat. But the latter has made a heavy impact with its Cantina Bell and Doritos Locos Tacos line of burritos.
The recently launched Doritos Cool Ranch has become an instant hit. While the quality is not the same as Chipotle, it is a much pocket friendly option. You can get a Doritos Cool Ranch for less than $2 while a Chipotle burrito will not cost anything less than $7 for basic options. And one does not compromise hugely on the taste either.
The results are clearly visible from the 6% same store sales growth the chain has just reported for the first quarter.
Last word
Chipotle is trying out many strategies to fuel long term growth. While store expansions and launching a new brand have their own merits, I think expanding menu options is the best thing that the company has done. The new food and drink options would rekindle the interest in Chipotle’s menu. This will drive comps and also help margins.
The article What Is a Better Strategy for Chipotle? originally appeared on Fool.com is written by Eshna De.
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