With practically every new fast-casual restaurant launch, the question is asked: "Is this the next Chipotle?"
Probably not is the answer, not that it will stop the speculation.
It does make sense for restaurants to borrow operationally or philosophically from the Denver-based burrito seller. Chipotle (CMG) has been a smash as both a restaurant and a stock. The problem is that replicating it is practically impossible.
Chipotle, part of the fast-casual restaurants category that industry researcher Technomic says generates $34.5 billion in sales, has helped bring awareness about how we eat into the mainstream. At Chipotle, previously controlled by McDonald's (MCD), the story is one of fresh ingredients, a small menu that allows for full customization and the belief that customers should know where their food is from.
It's a story that's helped shareholders make a great deal of money. Since it began trading in 2006, Chipotle shares are up 1,400%. In the last year it was privately held, Chipotle had revenue of $628 million, with 489 restaurants. By the end of 2013, it had revenue of $3.2 billion and 1,572 Chipotle-branded restaurants in the U.S. alone. Even after a recent price increase, customer traffic grew in the most recent quarter.
To be the next Chipotle means finding a way to show you care about the Earth and generating profits along the way. And while it's going to take time to see which chain — if any — can become the next Chipotle, here are a few brands to consider:
ZOES). Next Chipotle? Its chances are better than most. Based in Plano, Texas, Zoe's sells Mediterranean-style fare with a Southern hint. So it stands out for not being quite like all the others. Zoe's had 111 stores as of February in 15 states, and its salads and hummus won't have trouble getting diners looking for something healthier. Catering also helps. Last year, that was nearly one-fifth of its total revenue. The stock is up 12.4% from where it began trading in April, but it's well below its high above $35. The company thinks it will eventually have more than 1,600 U.S. stores.Zoe's Kitchen (
El Pollo Loco (LOCO). Next Chipotle? Maybe, especially considering it's not entirely unlike Chipotle with its grilled chicken and Mexican influences. Traders certainly think it has potential right now — but it's only been on the market for a week. The Costa Mesa, Calif., company priced its IPO at $15, opened at $19 and recently shares were trading at double that. It had 401 restaurants as of March, mostly in California but it also has locations in four other states. Expansion potential is tremendous, though it did have 21 stores east of the Rocky Mountains that have closed in recent years. It believes that it can get to 2,300 U.S. locations ultimately. Still, at some point, the competitive stress may become too much.
FRGI). Next Chipotle? Maybe, but its two distinct brands could make the quest harder. Addison, Texas-based Fiesta owns stores in the right space: Pollo Tropical, a grilled chicken chain with a Caribbean style, and Taco Cabana, a Mexican-food seller. It's got elements of both Chipotle and El Pollo Loco. At the end of last year, it owned 267 of its restaurants in five states. Room for growth is there, but does it have a differentiator? Chicken and Mexican fare get more and more popular, so as long as we don't tire of either, it should manage. The stock was extraordinary in 2013, gaining 241%. This year though, it's lost 14%.Fiesta Restaurant Group (
Noodles & Co. (NDLS) Next Chipotle? Not likely. This Broomfield, Colo.-based seller of pastas and noodles will be fine over time, but it might struggle to imitate the pull Chipotle has on large crowds. Burritos have a convenience advantage over a plate of pasta. Noodles & Co. ended 2013 with 380 restaurants in 29 states and Washington, D.C. Noodles believes it can get to 2,500 locations in the next two decades. Wall Street hasn't bought into the story yet, and shares are down 24% year to date.
Pie Five. Next Chipotle? Probably not. With 19 stores at the end of March, this chain, which allows consumers to make their own pizza from the crust up and get it within five minutes, is part of a larger craft pizza movement. But it faces competition -- the U.S. has more than 70,000 pizza stores. It's difficult to really ruin pizza, but it's also difficult to bring a standout to your local market.
PBPB) Next Chipotle? No. There's really nothing wrong with a Potbelly sandwich. The problem is that sandwiches are everywhere. Chicago-based Potbelly has to convince customers to choose it over Subway, Firehouse Subs, Jimmy John's and all the other bread stores in its markets. It had 307 outlets domestically in 2013, operating in 21 states and D.C. It expects to increase its store count by at least 10% a year. Not bad, but the stock has been a disaster since peaking right after its IPO in October. This year, it's down almost 53%.Potbelly (
The list could be much, much longer, but it will take years before we know if "the next Chipotle" is already here. Even so, the truth is that, although there are exceptions, there aren't a lot of next anythings that ever match the original.
- Consumer Discretionary