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The $50 Billion Lifestyle Brand

Here’s some food for thought.

Chipotle Mexican Grill Inc.’s (NYSE: CMG) stock in late July reached an all-time high as quarterly sales approached $2 billion for the first time under CEO and Chairman Brian Niccol.

More’s in store: Niccol thinks the restaurant chain can eventually grow to 6,000 locations in North America with the average location generating more than $3 million annually, or roughly $18 billion in annual sales for the Newport Beach-based chain.

Chipotle’s recipe for growth is easy to remember: open successful restaurants, leverage digital and bolster the brand.

Niccol, to that end, recently told analysts late last month digital is helping make Chipotle a “food-focused, digital lifestyle brand.”

It’s a mouthful, but the concept lends to Chipotle’s focus under Niccol.  

The chain’s done a lot to build its brand around the conversation in sustainable farming, playing up how fresh its ingredients are and how it wants to support the next generation of farmers.

A bigger push around digital has made tech the conduit to gain social currency and relevance. Examples include Pepper the chatbot in the Chipotle app for frequently asked questions, a digital-only kitchen in New York to expedite orders, Chipotlanes to also service digital orders faster, piloting TikTok for hiring and creating a video game for its now 23 million loyalty program members.  

Shares Up 450%

The brand building marks another achievement for Niccol, who has taken the company’s stock to more than $1,800 a piece, as of last week, for a market cap of $52 billion. Chipotle is OC’s second-most valuable public company, behind the nearly $70 billion-valued Edwards Lifesciences Corp. (NYSE: EW).

Chipotle’s stock has seen a run up of more than 450% since Niccol took the top spot in March 2018 after previously heading Irvine-based Taco Bell Corp. as CEO.

By comparison, multi-unit restaurant operator Yum Brands Inc. (NYSE: YUM) of Louisville, Ky.—parent to Taco Bell, The Habit Burger Grill, KFC and Pizza Hut—trades at around $130 per share with a market cap of $39 billion.

Most analysts covering Chipotle’s stock maintain a hold rating, including Deutsche Bank’s Brian Mullan, who characterized the company as “solid all around” in a research note last month. Mullan increased his price target to $1,630 from $1,495 and maintained a hold rating.

BMO Capital Markets analyst Andrew Strelzik noted Chipotle “is emerging from the pandemic stronger” as he reaffirmed the market perform rating on the chain’s stock and raised Chipotle’s price target to $1,750.

“Loyalty remains in its early innings and enhancements to digital technology and CRM [customer retention management] capabilities should allow [Chipotle] to increasingly leverage its loyalty member base,” Strelzik wrote in his research note, also pointing to the runway for dine-in sales to continue to improve and menu innovation, such as a brisket offering that could roll out later this year.

Digital Nearing $1B

Even as Chipotle restaurants bounced back in the recently ended quarter, recovering 70% of pre-pandemic sales, digital still held its own with about 80% of that channel’s revenue recovered.

“This highlights our digital experience’s sticky because it is everything customers love about Chipotle with added convenience,” Niccol told analysts in July. “And, due to the pandemic, many new consumers were introduced to Chipotle via our digital channels and are now using us for alternative and often incremental occasions.”

In other words, the channel’s surge last year wasn’t just a short-term factor to ward off the impact of COVID on both the company and the consumer end.

Digital saw a 10.5% lift in the second quarter from the year-ago period to total $916.5 million in the quarter. That accounted for nearly half of the quarter’s $1.9 billion in total revenue, up 38.7% year-over-year.

Chipotle’s got the pull to make good on gaining more ground.

Its restaurant footprint totals more than 2,850 locations, with a target to open more than 200 new ones this year. Chipotle’s workforce is now over 100,000 with a stated goal for its July 15 career day to hire another 15,000.

A spokesperson for the chain said thousands have been hired as a result of the recent career day, with the company still working through rescheduled interviews. The company’s pilot using TikTok has seen a “steady flow of video submissions” for restaurant jobs, the spokesperson said.

Local Expansion Plans

The company, when it relocated from Denver to Newport Beach with the hiring of Niccol, became Orange County’s second largest restaurant chain after Taco Bell Corp., the long-standing No. 1 here. It still was in 2020 with systemwide sales of $11.8 billion and nearly 7,000 restaurants.

Chipotle, during that same accounting period, had revenue of nearly $6 billion across 2,768 restaurants.

Both have aggressive growth plans. Chipotle with a long-term aim to get to 6,000 locations in North America; Taco Bell with a goal stated earlier this year of getting to 10,000 spots globally in this decade.

Both are ramping their workforces. Chipotle held its career day last month; Taco Bell said it hoped to add 5,000 in its April 21 hiring day.

And both are, of course, innovating on the service end using digital to speed up customer experiences either via the Chipotle Chipotlanes or Taco Bell’s smaller, dual drive-thru Go Mobile concept.

Niccol told analysts he’s optimistic about the long term for Chipotle: “I think we have the ability to grow units, grow average unit volumes, grow margins. Frankly, grow everything you want to grow. And then, at the same time, grow our organization.” 

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