CMG - Chipotle

[awindenberger]

Edit: Disappointed to see ShopHouse shut down. I liked the concept although it never packed the crowd or had the enthusiasm that Chipotle had.

 

I'm also a big fan of Shophouse. Must say I'm surprised it hasn't managed to catch on.

[TorontoRaptorsFan]

Surprised to hear Shophouse is going to close.

 

I managed to eat at a Pizzeria Locale in Boulder Colorado last month and was very happy with the food and service. It was extremely busy with wait times up to 30 minutes long.

 

It still looks like they plan on opening up to 175+ new locations next year.

 

Tasty Made opens tomorrow

http://www.eater.com/2016/10/26/13427272/chipotle-tasty-made-Ohio

 

I picked up some more shares on the drop today.

[ccplz]

Surprised to hear Shophouse is going to close.

 

I managed to eat at a Pizzeria Locale in Boulder Colorado last month and was very happy with the food and service. It was extremely busy with wait times up to 30 minutes long.

 

It still looks like they plan on opening up to 175+ new locations next year.

 

Tasty Made opens tomorrow

http://www.eater.com/2016/10/26/13427272/chipotle-tasty-made-Ohio

 

I picked up some more shares on the drop today.

 

How much are you losing so far?

[JayGatsby]

Yelp reviews of pizzeria locale are pretty strong, but it seems like a pretty saturated market. Burger market seems even more saturated. I guess the bet has always been that Chipotle continues to open new stores, with some option value on the other concepts. I'd previously thought their supply chain was a competitive advantage where they'd be able to enter new verticals (burgers for example) with better ingredients than competitors were able to offer at a similar price point. That doesn't seem to be true, so back to selling burritos. 

[ratiman]

Surprised to hear Shophouse is going to close.

 

I managed to eat at a Pizzeria Locale in Boulder Colorado last month and was very happy with the food and service. It was extremely busy with wait times up to 30 minutes long.

 

It still looks like they plan on opening up to 175+ new locations next year.

 

Tasty Made opens tomorrow

http://www.eater.com/2016/10/26/13427272/chipotle-tasty-made-Ohio

 

I picked up some more shares on the drop today.

 

How much are you losing so far?

 

Very uncool.

[TorontoRaptorsFan]

Surprised to hear Shophouse is going to close.

 

I managed to eat at a Pizzeria Locale in Boulder Colorado last month and was very happy with the food and service. It was extremely busy with wait times up to 30 minutes long.

 

It still looks like they plan on opening up to 175+ new locations next year.

 

Tasty Made opens tomorrow

http://www.eater.com/2016/10/26/13427272/chipotle-tasty-made-Ohio

 

I picked up some more shares on the drop today.

 

How much are you losing so far?

 

I'm holding Chipotle for the long term. Everytime it drops below $400 I purchase a few more shares.

[DTEJD1997]

Hey all:

 

I took a trip to Columbus OH the other day.  I have to travel on some secondary & tertiary roads in order to get there.  Very odd that you can't take the interstate highway the whole way...

 

Anyway, went through a couple of 2-3 traffic light towns in the middle of nowheresville Ohio, and saw some Chipotles! I was shocked, simply shocked to see these guys in these small towns.

 

If Chipotle is now out in the middle of nowhere, how much more growth do they have?  Perhaps there might be areas of the country that are "under penetrated"?

 

I was hoping one day to check out Shophouse. Sounded intriguing.

 

As for burgers....Detroit is ground zero for "gourmet" hamburgers.  Wahl burgers is now here.  Shake Shak is opening soon.  Bagger Dave's came & went...  5 guys are everywhere...the burger market is crowded, very crowded here...

[JayGatsby]

Initial review for Tasty Made are pretty poor: https://www.yelp.com/biz/tasty-made-lancaster

 

Nothing about the concept appears very unique. Looks like a knock-off of In-N-Out with a different signature sauce and better fries.

 

Seems like a distraction. I'm not opposed to their approach of having small teams try out low risk ventures, but why not experiment with pushing Chipotle overseas? China has a knockoff (https://www.tripadvisor.com/Restaurant_Review-g294212-d2705853-Reviews-Avocado_Tree-Beijing.html), but no Chipotle that I'm aware of. 

[johnny]

but why not experiment with pushing Chipotle overseas?

 

As I said last year, Mexican food is a very US-centric thing. Mexico is not a ~prestige~ culture overseas (which is why comparisons to MCD or KFC aren't relevant). So people are not going to be paying 70 RMB for a burrito, especially since the idea of making a meal out of a tube of rice isn't novel.

 

Chipotle's international opportunities were always an illusion IMO.

[ccplz]

but why not experiment with pushing Chipotle overseas?

 

As I said last year, Mexican food is a very US-centric thing. Mexico is not a ~prestige~ culture overseas (which is why comparisons to MCD or KFC aren't relevant). So people are not going to be paying 70 RMB for a burrito, especially since the idea of making a meal out of a tube of rice isn't novel.

 

Chipotle's international opportunities were always an illusion IMO.

 

?

 

I'm Chinese and I love Chipotle (the food not the stock)?

[TwoCitiesCapital]

but why not experiment with pushing Chipotle overseas?

 

As I said last year, Mexican food is a very US-centric thing. Mexico is not a ~prestige~ culture overseas (which is why comparisons to MCD or KFC aren't relevant). So people are not going to be paying 70 RMB for a burrito, especially since the idea of making a meal out of a tube of rice isn't novel.

 

Chipotle's international opportunities were always an illusion IMO.

 

?

 

I'm Chinese and I love Chipotle (the food not the stock)?

 

Yes, but it takes more than 1 person to support a Chain. He's not wrong - I have a ton of European friends and none of them are big on Hispanic food. Taco Bell struggles overseas too for similar reasons.

 

I'm not saying Chipotle couldn't find some success, but it won't be akin to what it's found in the U.S.

 

Also, regarding the reviews of Chipotle's Tasty Made and the comments about being like In-N-Out with better fries, is that a bad thing? Everyone I know raves about In-N-Out. I don't particularly care for it, but if that's the comparison it's drawing then why the concern?

 

 

[Ballinvarosig Investors]

Yes, but it takes more than 1 person to support a Chain. He's not wrong - I have a ton of European friends and none of them are big on Hispanic food. Taco Bell struggles overseas too for similar reasons.

It depends on where in Europe. The burrito thing took off here in the UK/Ireland about 3-4 years ago and lots of local chains had queues out the door like Chipotle in the US. For example, here in London, my local burrito shop will do a burrito and beer for £5. Chipotle have struggled to compete against that from what I have seen, but I would still see an ok turnover of traffic, just not queues out the door. On the other hand, I have been to Chipotle in Paris, and the experience was bad. Food was worse than in London and even more expensive. In fact, the only people in the shop at the time seemed to be American.

 

If Chipotle want to do an international roll-out, then they can't be half assed about it. If the focus of the company is freshness and quality, then they're going to need reliable local suppliers and to make the whole roll-out in a particular country sustainable, they need scale. I don't really see that sort of commitment from management and that is why countries like France can never take off, because the consistency in the product just won't be there, not to mention local tastes.

 

The big thing that worries me is their focus on other concepts like burgers, pizzas, etc. If the burrito thing is as strong as the numbers are supposed to be, the why go off doing other things? It seems to me that if CMG is to work out, then execution needs to be flawless. Quite frankly I don't trust management on this score.

[TorontoRaptorsFan]

Initial review for Tasty Made are pretty poor: https://www.yelp.com/biz/tasty-made-lancaster

 

Nothing about the concept appears very unique. Looks like a knock-off of In-N-Out with a different signature sauce and better fries.

 

Seems like a distraction. I'm not opposed to their approach of having small teams try out low risk ventures, but why not experiment with pushing Chipotle overseas? China has a knockoff (https://www.tripadvisor.com/Restaurant_Review-g294212-d2705853-Reviews-Avocado_Tree-Beijing.html), but no Chipotle that I'm aware of.

 

With a new concept there's always bound to be some kinks that need to be worked out. Yes there are a lot of so-so reviews but also a lot of positive ones. There's another Tasty Made opening up in December close to the first location.

 

As for expanding overseas, Chipotle has already stated they are really happy with the numbers coming in from their Canadian operations so they planned on opening up more locations. Expanding overseas is not easy. Shake Shack has done a good job partnering up with overseas franchises. Tim Horton's is starting to grow overseas but even Daniel Schwartz has said it will take time.

 

https://www.thestar.com/business/2016/10/24/plans-to-expand-tim-hortons-abroad-to-go-ahead-despite-global-uncertainty.html

 

 

 

[TorontoRaptorsFan]

but why not experiment with pushing Chipotle overseas?

 

As I said last year, Mexican food is a very US-centric thing. Mexico is not a ~prestige~ culture overseas (which is why comparisons to MCD or KFC aren't relevant). So people are not going to be paying 70 RMB for a burrito, especially since the idea of making a meal out of a tube of rice isn't novel.

 

Chipotle's international opportunities were always an illusion IMO.

 

 

?

 

I'm Chinese and I love Chipotle (the food not the stock)?

 

Make sure you wear a costume to Chipotle today. Burritos and bowls are $3!

 

[JayGatsby]

but why not experiment with pushing Chipotle overseas?

 

As I said last year, Mexican food is a very US-centric thing. Mexico is not a ~prestige~ culture overseas (which is why comparisons to MCD or KFC aren't relevant). So people are not going to be paying 70 RMB for a burrito, especially since the idea of making a meal out of a tube of rice isn't novel.

 

Chipotle's international opportunities were always an illusion IMO.

That's fair and I really have no idea. My point was I'd personally rather they experiment by opening a Chipotle in Beijing than a burger restaurant in Ohio.

 

[johnny]

but why not experiment with pushing Chipotle overseas?

 

As I said last year, Mexican food is a very US-centric thing. Mexico is not a ~prestige~ culture overseas (which is why comparisons to MCD or KFC aren't relevant). So people are not going to be paying 70 RMB for a burrito, especially since the idea of making a meal out of a tube of rice isn't novel.

 

Chipotle's international opportunities were always an illusion IMO.

 

?

 

I'm Chinese and I love Chipotle (the food not the stock)?

 

 

The explosive success of MCD and KFC in China had a great deal to do with where China was at the time (socially, economically) and what those brands symbolized. This was a time when the US was indisputably the sole superpower, the number one economy, having broken the iron curtain, yadda yadda. And China of course was just a few five-year plans removed from the mass starvations of Maoist economics. So there was a tremendous aspirational quality to indulging in what seemed "American", even if it was quotidian.

 

So the problems with that comparison are threefold:

 

1. America isn't what it was in the 90s

2. China isn't what it was in the 90s

3. Chipotle's "Americanness" is debatable

 

The average Chinese now has a general understanding that America isn't The Best In All Ways. They are generally aware that China is on a positive trajectory and there is an increasingly credible (imo) view that the fetishization of western companies, culture, and practices is unbecoming of a culture of China's standing. The aspirational Chinese citizen of 2016 doesn't consider it an aspiration to be like an average American.

 

But even if that wasn't true, Chipotle is nominally Mexican food. Mexico isn't aspirational, and non ABC Chinese aren't interested in the weird counter-signaling "I'm so down to Earth I just like a good burrito" thing that drives a lot of American celebration of taco restaurants. Americans eating at Chipotle are often dining-down from the alternative, opting for a $10 Burrito instead of a $15 sit-down. Chinese eating at restaurants are often dining up. So the entire pitch and price point doesn't cross over.

 

And then you have the problem of sourcing. How does Chipotle preserve their sourcing standards in a market that has absolutely no supply chain in place to support it? Either they insist on it and end up eating much higher costs (in a market where the price point can't support it) or they "relax" a bit in order to serve the preferences of the market. A year ago my position was that this introduces massive brand risk because they might end up serving bad meat or something. I guess I can change my estimate of the impact of that now.

 

And, like I said before, the biggest and baddest problem IMO is that Chipotle burritos are not totally dissimilar from actual normal, traditional food in China. The comparison of a street vendor's zongzi and a Chipotle burrito (at about 15x the price) will not be favorable. If you're paying that sort of premium as a Chinese, you're probably hoping for a premium branding (Starbucks), not a brand that, if you're aware of it at all, you generally understand as a source of peasant labor for America.

 

I didn't mean that all 1.3 billion people in China detest Mexican food.

 

If Chipotle had such attractive international expansion opportunities, they would have been demonstrated at some point in the past ten years. There's a reason international expansion was talked about quarter after quarter, but the only restaurants they opened up were in western markets full of homesick Americans that were sick of eating baguettes or sauerkraut.

[DanielGMask]

I initiated a position not long ago and plan to keep adding if the share price falls. The stock is not cheap but I do think this is a magnificent brand with a great concept. They served 30M new customers (per conference call) during this quarter, so even though the brand has been damaged and sales fallen, I doubt this is permanent.

 

By the way, I live in Mexico (from Spain but living in Mexico almost my entire life) and Chipotle is not Mexican food! The burrito is american. Mexican food is way more varied than residents of other countries imagine, but anyway, the taco is Mexican, the burrito is certainly not!

[johnny]

Perhaps the CAG ticker was taken ;)

[DanielGMask]

Perhaps the CAG ticker was taken ;)

 

+1

 

Clever answer!

[SlowAppreciation]

Short writeup on Brooklyn Investor - http://brooklyninvestor.blogspot.com/2016/10/gothams-new-fund.html

[chrispy]

A fast casual chain that I came across while in Houston for several weeks was Vertskebap (still mostly in the Texas region).  The owners were MBA students that started it right after graduation.  The food was great, I ended up eating it 3x my last week just because I would miss it!  Unique enough that the market is less saturated but a style of food that many European descendants will feel comfortable with.  It is still a private company that just received another round of funding.

[DooDiligence]

A fast casual chain that I came across while in Houston for several weeks was Vertskebap (still mostly in the Texas region).  The owners were MBA students that started it right after graduation.  The food was great, I ended up eating it 3x my last week just because I would miss it!  Unique enough that the market is less saturated but a style of food that many European descendants will feel comfortable with.  It is still a private company that just received another round of funding.

 

That name is kind of hard to swallow (sorry; couldn't resist!)

[ZenaidaMacroura]

A fast casual chain that I came across while in Houston for several weeks was Vertskebap (still mostly in the Texas region).  The owners were MBA students that started it right after graduation.  The food was great, I ended up eating it 3x my last week just because I would miss it!  Unique enough that the market is less saturated but a style of food that many European descendants will feel comfortable with.  It is still a private company that just received another round of funding.

I am very familiar with this name (on a few different levels).

 

What was the wait time like?  I am under the impression they cannot have the same efficiency /speed as chipotle (longer wait times).

[JayGatsby]

You have to suffer through Cramer, but the CFO's commentary here is worth listening to: http://www.cnbc.com/2016/11/09/chipotle-exec-sheds-light-on-conversations-with-billionaire-bill-ackman.html

 

Few main takeaways for me:

1. Continuing to see sales recover at ~1% per month

2. Ackman isn't pushing for anything

3. Continuing to buy back shares

 

Not sure how he can say higher wages won't impact them. Sure, they can raise prices, but there has to be at least some price elasticity.

[glorysk87]

You have to suffer through Cramer, but the CFO's commentary here is worth listening to: http://www.cnbc.com/2016/11/09/chipotle-exec-sheds-light-on-conversations-with-billionaire-bill-ackman.html

 

Few main takeaways for me:

1. Continuing to see sales recover at ~1% per month

2. Ackman isn't pushing for anything

3. Continuing to buy back shares

 

Not sure how he can say higher wages won't impact them. Sure, they can raise prices, but there has to be at least some price elasticity.

 

Or maybe most of their employees are already above min. wage so wage increases won't impact them.