Chipotle Mexican Grill (CMG) has been around for over 21 years. It has been very successful in recent quarters. Part of CMG’s success can be explained by improvements in the U.S. economy. The consumer discretionary sector benefited from the improving economy. Restaurant industry is part of this sector.
In our restaurant indicator series, we discussed that the Restaurant Performance Index was 101.9. This indicates an expansion period.
If the economy is doing well and customer confidence is increasing, why are fast food restaurant chains struggling? McDonald’s (MCD) posted a U.S. same-store sales decline of 3.3%. Yum! Brands (YUM) only reported 2% same-store sales growth for Kentucky Fried Chicken (or KFC) in the third quarter.
Darden, McDonald’s, Yum! Brands, and Chipotle are all a part of the Consumer Discretionary Select Sector SPDR Fund (XLY).
The struggles are a result of a change in demographic trends, tastes, and preferences. We’ve seen that Millennials are choosing organic and healthy food.
Consumers are more aware of their eating habits. Recently, a health and diet survey by the Food and Drug Administration (or FDA), found that for this first time “more than half of consumers in the United States often read the food label when buying a product.”
The FDA requires that food products include nutritional content labels. The latest proposal is to update the nutritional labels. It will require a bigger font for calorie information.
Chipotle’s management seems to understand want customers want. They’ve executed awareness campaigns. The campaigns highlight CMG’s organic and fresh ingredients.
Management is also extending this method to its two new concepts—the ShopHouse and Pizzeria Locale.
So, how serious is management about growing these concepts and adding value to the stock? We’ll discuss this in the next part of the series.