Chipotle (CMG) has never wanted to be a traditional fast-food restaurant. It's wanted to be viewed as better -- in terms of quality, ingredients, taste, supplier practices and just about everything else.
Recently, co-CEO Montgomery Moran told TheStreet.com the Denver-based burrito seller believes fast food is "going away," because Chipotle "and others like us" are remaking the chain-restaurant industry in the fast-casual, food-with-a-conscience, slightly pricier manner. "Our mission is to change how people eat fast food," he said.
Moran believes building more Chipotles, getting customers to care about workplace issues, welcoming competitors who copy Chipotle's philosophy and convincing suppliers to alter production methods are among the factors that will drive this change. Chipotle supporters will applaud, hoping the day is near when fast food as we know it vanishes. Others will find this preaching from a chain that thinks it knows better than you.
Either way, traditional fast food isn't really going away anytime soon. That's not to say shifts aren't taking place. Less-bad cooking oils are being used. Veggie burgers and Satisfries appear (and disappear). There's a creeping stigma around fast food, and greater scrutiny of ingredients in general. Vani Hari famously showed that consumer campaigns can work when her petition prompted Subway to remove an additive in its bread. So yes, change is happening. But perspective is needed on how much and how fast the world Chipotle envisions might be here.
Fast casual is almost certainly going to grow in popularity, especially with millennials. But the question of whether it can ever truly replace fast food is far more complex and far less certain.
It begins with size. No restaurant gets the amount of hate McDonald's (MCD) does, yet it's still putting up hundreds of stores a year, averaging sales of about $2.5 million each. Chipotle's at $2.2 million. It's important to state that Chipotle's comparable sales are growing fast, while McDonald's aren't. Chipotle's customer traffic is surging, McDonald's isn't. But McDonald's, and its direct competitors, have a deeply entrenched position, making them exceedingly difficult to displace.
Last year alone, McDonald's opened almost as many new restaurants, at 1,438, as Chipotle operates, at 1,595. It closed 489 locations, because that's what it does -- one closes, two others take its place. Industry researcher Technomic says the fast-casual group -- the entire group -- where Chipotle resides had $34.5 billion in sales last year. McDonald's U.S. stores pulled in almost $36 billion. McDonald's and eight other chains, including Burger King (BKW), Wendy's (WEN), and the Yum Brands (YUM) trio of Pizza Hut, Taco Bell and KFC, had 51,773 U.S. stores at the end of last year. This doesn’t include Hardee's, Arby's and the rest.
Healthier options, regularly pushed by fast-casuals, haven't exactly changed the game for fast-food operators when they've gone that route. McDonald's has previously said salads are a small percentage of sales, and Burger King recently stopped selling its lower-calorie fries. The regular fries stayed, chicken fries returned. We just don't go to fast-food stores for kale. We do, however, make the same New Year's resolutions time and again.
These chains aren't going to stop doing what they do as long as we're paying them. They'll surely keep borrowing from elements of fast casual when it suits them -- fancy breads, customization and new-look stores -- but fast food persists because we choose to eat it. It's cheap, easy to find and uniform. And, of course, fast. These are tall mountains to conquer.
On the price component, fast-casual meals are generally a bit more expensive than fast food, so what do people want to spend? What if you can't pay more, even if you'd like to? That "value" aspect is one Chipotle doesn't incorporate in its business, but it's important to fast food, and it keeps people buying. Then there's the convenience. Drive-through windows account for about two-thirds of sales at a typical chain that has them. Until the U.S. car culture changes, that won't, because we like to eat food and drink coffee on the road, and we don't want to wait long for our orders. We could get by without the windows and figure out something else to eat, but if wanted to, we already would.
Not just restaurants
Large alterations to fast food wouldn't be limited to the restaurants themselves. The top chains buy extraordinary amounts of food from suppliers, frequently through massive franchisee co-operatives designed to keep costs down. When restaurant demands become something else, farmers, processors and distributors are affected. And as factors such as environmental considerations or new livestock dietary restrictions enter the equation, that means further impacts on supply chains and costs.
How fast and willingly can the supply chain be addressed for tens of thousands of restaurants? Even Chipotle can't always ensure its meat is from animals raised without hormones or pharmaceuticals, pointing out for instance that in 2013 some stores sold "conventionally raised" beef and chicken for a time, owing to supply challenges.
What about shareholders of public restaurant companies? Chipotle has shareholders who've been rewarded mightily for their loyalty, but those of a number of would-be "next Chipotles" haven't always been. So would investors in the fast-food chains call for Chipotle-like reboots? That could be a path to change, but what kind of patience do they have, and will they tolerate the risk it won't work?
Then there's the franchisee issue. Many brands own only a few stores, leaving a large percentage of restaurant operating costs to franchisees. Theoretically, company headquarters don't have to be overly worried about restaurant profit margins, since their own revenue is generated by franchised-store sales, royalties and rents. However, they do have to manage what already can be stressed relationships with the business owners running their units. What change do they want, if any? Chipotle owns all its stores. While that means it assumes every cost, it also doesn't have any franchisees to deal with.
Ultimately, the power, the real power, is with the consumer. What do we want to eat, and at what price? Do we care about farming practices, do we want to eat only locally raised foods, and how fast do we need our meals?
In a sense, Chipotle has an asset in fast food's continued existence, because it gets an "enemy" to measure itself against. Maybe one day it won't have this, but considering the industry complexities -- cost structures, fast-food scale, customers, franchisees, purchasers, shareholders, suppliers, employees -- it's going to be making its arguments for a very long time.
Then again, it didn't say it expected this to happen overnight, which clearly is reasonable. Many aspects of fast food happen quickly and cheaply, but Chipotle's type of change probably won't.