Breakout

Chipotle vs. Taco Bell: There’s No Competition Says Vickers

Jeff Macke
Breakout

The hardest blows are the ones you don't see coming; just ask shareholders of Chipotle Mexican Grill (CMG). It was a long summer for the company, having dropped some 25% off its all-time highs after a rare earnings warning in July. Still, the shares seemed to be stabilizing.

Then David Einhorn took the stage at a the Value Investing Congress in NYC earlier this week. Einhorn, the boyish billionaire founder of Greenlight Capital has earned a reputation as one of the shrewdest and influential short-sellers of his generation. He took the stage about 11am on Tuesday. At just about 10 past the hour he started laying out the case for being short CMG. From 11:14 to 11:16 CMG fell from $313 to $293; a more than 6% drop shaving off nearly $1 billion in market cap.

What did Einhorn say? Nothing new according to Damon Vickers, the chief investment officer of Damon Vickers & Co. Among the sharpest criticisms of CMG was the competitive threat it faces from the new Cantina Bell menu at Yum! Brands' (YUM) Taco Bell units. The Cantina concept is designed to replicate the Fresh Mex experience found at Chipotle.

Among the many problems with characterizing the two as competitive is that the Taco Bell version of Fresh Mex comes off the "same assembly line as a burrito." The ingredients at Taco Bell are centrally sourced, arriving via what Vickers characterizes as a corporate food truck. In contrast, Chipotle is locally sourced and prepared by in-house "chefs" as opposed to Taco Bell workers held to a slightly lower standard.

An early investor in Chipotle, Vickers says the company is very young in its growth phase. "There's ample room for fast but healthy food," he says, ticking through just some of the litany of health problems facing our morbidly obese nation.

Vickers owns both Yum! and Chipotle. He has both dogs in the fight and bought more CMG on the Einhorn dip. His point is that Taco Bell and Chipotle are different animals. One is strictly fast food, the other provides healthy food fast. As it stands today Taco Bell simply "can't reproduce that experience."

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