Competitive pressures
Chipotle Mexican Grill, Inc. (NYSE:CMG) faces competition from fast casual chains as well as traditional Quick Service Restaurants or QSRs.
So on one hand there is McDonald’s Corporation (NYSE:MCD), Burger King Worldwide Inc (NYSE:BKW) and the like and on the other hand there are chains like Panera Bread Co (NASDAQ:PNRA) which are also tapping the health awareness wave. But the company’s closest rival is Qdoba Mexican Grill, which offers fare similar to Chipotle. Let us examine Panera Bread Co (NASDAQ:PNRA) and Qdoba and see how they are faring.
Panera Bread Co (NASDAQ:PNRA) is attracting footfall through its newly introduced pasta menu as dinner option along with addition of chips and shrimp to its existing menu. The chain posted good first quarter results although revenue fell short of analyst expectations. Revenue increased 13% to $561.8 million against analysts’ estimate of $566 million. Earnings increased 17% to $1.64 per share.
Panera reported lower comps in the first quarter which dampened investor enthusiasm somewhat. Its same store sales growth came in at 3.3% at both company-owned and franchised restaurants, which was below its own guidance of 4-5% at company-owned outlets. Panera attributed this to bad weather. It is now looking to fuel growth and has planned to increase its marketing spend by 30% in 2013.
Meanwhile, Jack in the Box Inc. (NASDAQ:JACK) too could not do justice to its guidance of 1-2% comps growth in its Qdoba chain in the recently reported second quarter. Same store sales growth declined 1.5% at Qdoba with both company owned and franchise stores contributing to the decline.
Again weather was considered the main culprit although the key factors are possibly the weak eating out environment and competitive pressures.
The chain is however expanding its presence in the country. It opened 15 new locations during the quarter, which brings the count of total Qdoba restaurants to 647. The company has plans of adding 70-75 Qdoba outlets through fiscal 2013.
Last Word
Chipotle Mexican Grill, Inc. (NYSE:CMG)’s naturally raised meat, innovative menu, warm reception, and nice interiors have created a strong brand in the fast casual segment. With more promotions, new menu options, and its catering service the company will further augment its appeal. Meanwhile it will usher in growth through domestic and international expansion. Considering these facts I think Chipotle’s valuation is justified and investors can expect more upsides in the future.
The article What Will Boost Growth of This Food Retailer? originally appeared on Fool.com and is written by Gaurav Basu.
Gaurav Basu has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill and Panera Bread. Gaurav 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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