Chipotle is expanding
In the last part of this series, we learned that Chipotle Mexican Grill is trying two new concepts—ShopHouse Southeast Asian Kitchen and Pizzeria Locale. We’ll discuss each of the concepts in this series.
ShopHouse serves southeast Asian cuisine. It uses the same format as Chipotle Mexican Grill (CMG). Customers will see a resemblance in the assembly line style. First, the customer chooses between a rice, salad, or noodle bowl. Then, the customer selects meat or tofu. The customer can choose a vegetable, sauce—like green curry, and a garnish—like pickle, green papaya slaw, or herb salad. Finally, the food can be topped with toasted rice, crispy garlic, crushed peanuts, or Thai chilies.
Pizzeria Locale serves pizza. It uses a format that’s similar to the assembly line format we discussed above. A customer can order a classic pizza or build his own. The customer starts by choosing a base—red or white. Then, there are a variety of toppings available. This is similar to ordering pizza at Domino’s (DPZ), Papa John’s (PZZA) or Pizza Hut—under Yum! Brands (YUM). The company differentiates itself from these successful chains by having the “pizza made in front of you in minutes.”
Yum! Brands and Chipotle are included in the Consumer Discretionary Select Sector SPDR Fund (XLY).
The company also priced the menu similar to Chipotle. For example, a grilled steak bowl costs $7.50 at ShopHouse. This is the most expensive item among the bowl section of the menu. Similarly, the most expensive item on the Pizzeria Locale menu is the supreme pizza under the classic section. It costs $8.25. An average meal at Chipotle costs ~$8.
With McDonald’s (MCD) and Burger King (BKW) offering the dollar menu, how effective is Chipotle’s pricing strategy? A strong same-store sales indicates that customers are willing to spend at Chipotle. Also, management emphasized that their price increase initiative due to food inflation had “little or no effect.”
Also, CMG uses quality ingredients that carry a higher cost. In the next part of the series, we’ll discuss Chipotle’s food costs.