5 reasons Chipotle is killing it
Chipotle Mexican Grill (CMG) blew the doors off of its second quarter Monday, and its shares took an after-the-bell leap to an all-time high near $650, double the price hit early last year.
Investors are high on the stock for many reasons. Chipotle took the rather stale concept of fast Mexican food and turned it into something new. It's got Taco Bell running back to its playbook, and it's got fans lining up for more. Read on for five ways Chipotle is killing it.
It raised prices and diners still came in droves. The company hiked prices this spring for the first time in three years, unable to keep up with rising costs for beef, cheese and avocados. The across-the-board increases generally were around 6 percent.
But no one seemed to care. Analysts from Credit Suisse surveyed several stores and found that customers mostly had no comment on the price increase, and no one changed their buying behavior, Quartz reports.
"It's the best traffic number in the industry," Sterne Agee analyst Lynne Collier told Investor's Business Daily. "Rarely do you see numbers this high." She estimated that traffic rose by double digits from a year earlier.
Customers like the focus on healthy ingredients. Chipotle's emphasis on higher-quality ingredients has been a hit with Millennials in particular. The company likes to use grass-fed, antibiotic-free beef, but can't find enough of it in the U.S. It had to temporarily use conventionally raised beef in some restaurants in the quarter, and posted signs to let customers know about the changes. Chipotle is now shipping in meat from Australia.
"With the nation's beef supply at a 60-year low and our demand continuing to rise, it looks as if this challenge is going to continue," said co-CEO Steve Ellis in the company's earnings call Monday.
It's catering business is growing. Chipotle also caters food, and the catering arm got a nice boost in the quarter from graduation parties and other special events in May and June, said co-CEO Monty Moran in the earnings call. Catering sales were 1.6 percent of revenue in the quarter. That doesn't sound like much until you consider that revenue climbed to $1.05 billion, meaning Chipotle catered more than $16 million worth of burritos and tacos. And catering sales rose from 0.3 percent a year ago.
It isn't using gimmicks to add customers. Most food chains can only achieve big quarterly results like this with a major product release or a tie-in to a blockbuster movie, but Chipotle did it without any tricks, writes Bruce Horovitz at USA Today. In fact, the most interesting new product is the Sofritas made from organic tofu. The sales increase at restaurants open at least a year, also known as same-store sales, soared 17.3 percent in the quarter.
It's slinging burritos faster than ever. Employees are moving people through the lines at record speeds. "We're the fastest we've ever been at lunch time and dinner time," said Ellis during Monday's call. The average speed throughout the entire day is increasing as well, he added. Lines are still long, though, and executives know that. If sales continue increasing, they're just going to get longer. Chipotle opened 45 new restaurants over the quarter and is on track to open 180 to 195 new locations this year.