Chipotle Mexican Grill
John Hawer Herrera February 21, 2013 MGMT 561
Chipotle Mexican Grill, Inc.: “Food With Integrity”
I. Key Problem What Steven Ells began with a small taqueria in Denver, Colorado in 1993, one may not have foreseen this venture to become the fastest growing restaurant chain in the last decade. By 2006, Ells’ idea made its initial public offering with 535 restaurants throughout the world. Things were going tremendously well for CMG until late afternoon on October 18, 2012 when Ells finished receiving the company’s third quarter results. While data indicated an overall satisfactory outcome, it was the competition from Yum Brands’ Taco Bell and their recent launch of the Cantina Bell menu that would result in what seemed to be the onset of a major problem. Taco Bell had now become a major competitor to Chipotle since the launch of their new Cantina Bell menu allowing them to enter into the fast-casual segment in offering similar ingredients and items as Chipotle had. At the same time CMG paid a significant amount more for their products forcing them to charge a higher price on their menu items. Taco Bell, however, now offered similar items for half the price. The bottom line: competition was the root of this problem. The fact that Chipotle menu prices were higher as compared to that of Taco Bell’s new menu would lead to consumers or normally loyal customers to give the Cantina Bell menu a try. After the launch of the Cantina Bell menu in the summer of 2012, CMG stock significantly declined just after third quarter results were announced. To add insult to injury, Jeff Einhorn, a hedge fund leader, presented at the Value Investors Conference in New York City proclaiming that CMG was an attractive stock for short-sellers because of the considerable competition from Taco Bell. He further stated, “23% of Chipotle customers had already tried Taco Bell’s Cantina Bell menu…and two-thirds of those customers indicated they would
Chipotle Mexican Grill, Inc.: “Food With Integrity”
I. Key Problem What Steven Ells began with a small taqueria in Denver, Colorado in 1993, one may not have foreseen this venture to become the fastest growing restaurant chain in the last decade. By 2006, Ells’ idea made its initial public offering with 535 restaurants throughout the world. Things were going tremendously well for CMG until late afternoon on October 18, 2012 when Ells finished receiving the company’s third quarter results. While data indicated an overall satisfactory outcome, it was the competition from Yum Brands’ Taco Bell and their recent launch of the Cantina Bell menu that would result in what seemed to be the onset of a major problem. Taco Bell had now become a major competitor to Chipotle since the launch of their new Cantina Bell menu allowing them to enter into the fast-casual segment in offering similar ingredients and items as Chipotle had. At the same time CMG paid a significant amount more for their products forcing them to charge a higher price on their menu items. Taco Bell, however, now offered similar items for half the price. The bottom line: competition was the root of this problem. The fact that Chipotle menu prices were higher as compared to that of Taco Bell’s new menu would lead to consumers or normally loyal customers to give the Cantina Bell menu a try. After the launch of the Cantina Bell menu in the summer of 2012, CMG stock significantly declined just after third quarter results were announced. To add insult to injury, Jeff Einhorn, a hedge fund leader, presented at the Value Investors Conference in New York City proclaiming that CMG was an attractive stock for short-sellers because of the considerable competition from Taco Bell. He further stated, “23% of Chipotle customers had already tried Taco Bell’s Cantina Bell menu…and two-thirds of those customers indicated they would