Is Taco Bell gain causing Chipotle pain?

Chipotle is seeing a slowdown in sales growth. Could that have anything to do with Taco Bell's new momentum?

By Kim Peterson Aug 3, 2012 3:07PM
The chief financial officer of Chipotle Mexican Grill (CMG) has completely dismissed any suggestion that his company is suffering as Taco Bell's business has surged.

Is he right? Let's look at the facts.

Taco Bell, owned by Yum Brands (YUM), saw same-store sales soar 13% in the quarter ended June 16. Taco Bell's impressive showing was fueled largely by its Doritos Locos Tacos, which launched in March and became the most successful launch in company history. Taco Bell sold 100 million of these tacos in 10 weeks.

Qdoba Mexican Grill has also seen an uptick in sales, though not nearly to the extent that Taco Bell has. Qdoba, owned by Jack in the Box (JACK), said its same-store sales rose 3% in the second quarter.

Compare that with Chipotle, whose stock crashed last month after second-quarter revenue growth came in below analyst expectations. Same-store sales only rose 8% in the quarter ended June 30, which, although still meaningful, wasn't the 10% gain analysts expected.

So can we connect the dots? Can Taco Bell's gain be impacting the slowdown at Chipotle? CFO Jack Hartung dismisses the idea completely.

"The experience we provide is very different from Taco Bell's," Hartung told Jim Cramer Thursday on CNBC's "Mad Money" program. "We don't think our customers are on their way to eat lunch or dinner, and are thinking, 'Gee, should I have Taco Bell or should I have Chipotle?'"

Hartung added that he didn't see any sort of customer tradedown in the Mexican-themed fast-food business. Customers aren't choosing Taco Bell's lower prices over Chipotle.

"Our customers, they don't talk about deciding to go get a burrito and where should they get that from," Hartung said. "They talk about having a meal that they want to enjoy and they think about Chipotle. So they don't think burrito first, and then Chipotle."

So is he right? I don't buy it. I think many customers definitely think about what kind of food they want and then where to get it. Taco Bell is having a great year, ramping up advertising for its new offerings and reinventing itself after a prolonged downturn when a lawsuit last year questioned the quality of its beef.

The second quarter results don't include the new "Cantina Bell" menu from Taco Bell, which launched in July. The Cantina Bell effort is a clear attempt by Taco Bell to attract Chipotle customers, although neither company wants to admit that.

Is it working? So far, the reviews for Cantina Bell items have been fairly positive. "For practically half the price, the Cantina Bell menu is a definite value, but you do get what you pay for, and the overall quality and taste of Chipotle still has a slight edge over Taco Bell," writes reviewers from Zagat.

The third-quarter results from both companies should prove very interesting, and shed more light on this. Yum Brands' quarter will include the new sales from the Cantina Bell menu, and will offer a better look at the contributions from the Doritos Tacos line after the initial hype around the launch has disappeared.

It may be too early to definitively say that Taco Bell is eating some of Chipotle's business, but the signs are there.

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38Comments
Aug 6, 2012 8:40AM
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Taco Bell may cost less, but Chipotle beats them in quality, hands down. I would pay for quality over quantity any day.

Aug 3, 2012 5:28PM
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People don't generally compare Chipotle to Taco Bell. If I want a filling burrito bowl for $6.25 over the same amount of food from Taco Bell for around $8 I'll drive across town to get it. You can ask for extra rice and everything but meat for free, they're more than happy to take care of you. 
Chipotle is like a high end fast food restaurant and, compared to other restaurants like Wendy's Arby's, KFC, etc, have pretty reasonable prices. 

As for quality, comparing Taco Bell to Chipotle is like comparing Little Caesar's to Pizzeria Uno, no comparison. You want quality locally grown produce, rBGH free dairy and steak, food with integrity you go to Chipotle.
If you want m****duced dog food quality "meat substitute" go get some taco bell.

Aug 6, 2012 11:24AM
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Taco Bell used to be a decent fast food place before they were acquired by Pepsico via YUM! brands. Since then, the quality has dramatically decreased while the prices increased. Every time my wife drags me to a Taco Bell, I always leave feeling as if the money paid just wasn't worth the stomach ache from all the fat and unnatural ingredients in the food.

If Q-doba and Chipotle want to improve their income, they need to lower their prices and allow volume of business to make up the profits. While a shorter profit margin per item is not interesting to Wall Street, the overall net gains would be very appealing.

 

 

Aug 3, 2012 10:06PM
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The big problem with Chipotle, very little variety. Aside from the meat, the only difference really is a shell, tortilla, or neither, and the spiciness of the salsa. Ingredients are pretty much the same no matter what you order. 
Aug 6, 2012 11:31AM
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Comparing Taco Bell to Chipotle is like comparing Wendy's to Panera Bread.  They are vaguely similar in that they offer food, but one is not a replacement for the other.
Aug 3, 2012 6:36PM
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The service at Chipotle has gone down hill!! Five years ago they delivered excellent service. Now, it seems you are bothering the staff when you go in and order something. Chipotle needs to get back to its roots.

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Isn't there a moderator here to filter messages? Why all the 'dating' ads???

As for Chipolte and Qdoba, I like both restaurants.  I go there for good wholesome food, put together as I want, since I select the ingredients.  If your burrito is tasteless, then you selected the wrong ingredients, and have no one to blame but yourself.  You don't get to select what goes in your burrito at Taco Bell, and I don't think I want to know what they put in it. I honestly don't believe anyone decides between the two places...Chipolte and Taco Bell...when deciding where to eat. But then, Taco Bell never enters my mind when thinking about food.

Aug 3, 2012 8:52PM
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While I've tried the new menu (three item new menu) and I do like the Chicken Bowl, the thing is...  Taco Bell is TOO TOO TOO expensive for what it is.        A chicken bowl, drink, chips... is $8 bucks in Los Angeles.   Too stupid for words.     Awesome sit down, with waiters Mexican resturant is one mile away, and they've got daily lunch specials for $5.75. 

 

I grew up on Taco Bell (1970's and 80's) when you could get a taco for .59 cents.     And I'd have to wonder...  If Carls Jr can serve up TWO TACOS for $1.00, then why can't Taco Bell.

 

And let's face it, with the exception of the new menu, just about EVERYTHING else is made with the SAME food mixture. 

 

I had a guy in front of me the other night and I heard the person tell him his bill was $39.00.  (too stupid for words)   (amazing Chinese place across the street from this Taco Bell and $40 bucks would serve 6 people with takeout.)

 

Anyway....    Too too too expensive for the quality of food.

Aug 3, 2012 4:58PM
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Chipotle raised their prices and rarely offer any type of promotion.

The food is good, but I don't value a burrito bowl and drink at $11.00.

For $14.00 I can get a Fajita platter at Pappasitos. 

 

Have not tried Taco Bell's new menu,but it would appear they are attempting to close the quality gap.

Aug 3, 2012 3:55PM
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There isn't a chipotle within 300 miles of me, in fact stores are few and far between.  I don't normally eat at taco bell, but with their new menu, I'm going to give it a try.  I think with so many restaurants throughout the nation, they will definitely give chipotle a run for their money.  I don't expect it to be quite as good as hipotle, but it will probably beat driving 300 miles.
Aug 3, 2012 5:29PM
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The cantina bowl at taco bell was disgusting.  Mostly rice & shredded lettuce.  Yuck!
Aug 6, 2012 11:40AM
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So if you're looking for a small taco with 1/2 teaspoon of taco meat, go to Taco Bell.  Worse yet, if you want something rolled up stuffed with fritos corn chips and fake cheese sauce, go to Taco Bell.  But if you're looking for a big serving of healthy food that tastes fantastic, then there is just no comparison.  I don't remember the last time I debated to myself about going to Taco Bell or Chipotle.  Sure, Chipotle is way too loud to have a conversation because of the music, and the staff can be really slow (as the line goes out the door) but Chipotle is way better by a long shot.
Aug 3, 2012 7:10PM
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tried the Taco bell bowl  yuck  not good with lettuce

dont waste your time and money

 

Aug 3, 2012 7:14PM
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Chipotle and Qdoba serve the most bland, run of the mill burritos one could ever find. Which I suppose is what one would expect to find at a chain restaurant that appeals to the masses. Sure, they are much higher quality than anything at Taco Bell, but when one goes to Taco Bell I don't think they are expecting a five star meal. People go to Taco Bell because even though it is terrible, it tastes pretty good lol. If you want a real burrito, you have to go somewhere local and isn't some huge chain restaurant. Bravo Burritos in St. Cloud Minnesota is heaven, and has the best burritos I have ever had. Sure, it is kind of a dive, but the food is awesome! 
Aug 3, 2012 6:36PM
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The service at Chipotle has gone down hill!! Five years ago they delivered excellent service. Now, it seems you are bothering the staff when you go in and order something. Chipotle needs to get back to its roots.

Aug 3, 2012 5:29PM
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Taco Bell= Fat. Chipotle= more healthy and fresh. Of course Taco Bell is doing better. People are too lazy and fat to go into a healthier choice place... better to eat the lard through the drive thru..
Aug 6, 2012 1:44PM
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Taco bell is good drunk food.  If Chipotle was open at 3AM and had a drive thru, there would probably be an uptick in sales too. 

Only partly kidding.  But Taco Bell could really make a killing if they served breakfast.  Breakfast TACOS, yum.  It has always baffled me that they don't serve breakfast. 

Aug 3, 2012 5:56PM
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Chipolte is way overpriced. Food is OK but nothing outstanding. I hate the dining area of their restaurants. Looks like a prison dining hall. Taco Bell at least has booths, and tables. The service is faster and the selection better at Taco. I can get a much tastier meal at several of the local family owned Italian restaurants at the same price as a Chipolte burrito and drink.
Aug 3, 2012 6:50PM
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Qdoba needs to expande more to other places. For example colleges. I am from Louisville, ky and love Qdoba but there are none in BowlingGreen, Ky where I had to move to go to College the closest Qdoba is about an hr away in nashville and yes me and a few friends have gone to Nashville just for Qdoba. The only other place we have is Moes and it cant even compare to Qdoba in my mind and to a lot of other peoples minds. I really think if there was a better expantion of the market Qdoba would have no problem.

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