Customers Are Going Bonkers for Chipotle's Newest Menu Item

People seem to be enjoying the chain's newest menu item, spicy chorizo sausage.
By Brian Sozzi ,

So far, so good for Chipotle's (CMG) - Get Report newest protein. 

"Our informal surveys indicate the addition of chorizo to the Chipotle menu has been well received by customers, and traction may be pacing ahead of the company's expectations," wrote BMO analyst Andrew Strelzik in a new note on Wednesday.

He added that "40% of locations indicated they ran out of chorizo due to stronger-than-expected demand and employees at several locations mentioned chorizo was the second most frequently ordered protein behind chicken."

Chipotle introduced spicy chorizo, which traditionally is made from seasoned pork but in Chipotle's version includes white meat chicken -- on June 29 at restaurants in Columbus, Ohio; New York City (Manhattan locations); Sacramento and San Diego, Calif.; one location in Denver, Colorado; and at Dulles International Airport in the Washington, DC area. The company expects to expand chorizo to all of its U.S. restaurants this fall.

The fast-casual chain had previously tested chorizo in markets such as Kansas City back in June 2015. "It was very popular, it quickly became customers'... favorite protein," said Chipotle Founder and co-CEO Steve Ells on an April 26 call with analysts when he teased the launch. 

Historically, Chipotle has been reluctant to make any changes to its menu in the fear of upsetting customers and slowing up busy lines. In fact, it's only added one new food to its menu -- sofritas in 2014-- in its entire 23-year history.

But, with sales and traffic likely still sluggish following several high-profile food safety incidents last year, Chipotle likely saw little risk in betting that people would want to give its new chorizo a taste. The risk may just pay off for Chipotle in improved sales and profit later this year as chorizo arrives all locations in the fall.

"There is a greater likelihood that chorizo drives incremental traffic relative to sofritas as its spicy taste profile differentiates it from the company's other proteins, while pricing for chorizo entrees likely implies margin favorability relative to Chipotle current mix," said Strelzik. 

A sales and profit rebound of any kind for Chipotle would likely be a relief to beleaguered shareholders. Shares of Chipotle are only about 3% removed from a 52-week low hit on June 14.  

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