Shares of Chipotle Mexican Grill (CMG) received a much-needed pick-me-up last Friday. The reason for the boost wasn't the universal need for a burrito pig-out following this stressful week of elections, but word that the company's foray into gourmet burgers is going well.
Chipotle shares rose 1.31% in Friday trading, but the restaurant chain remains a poisonous play for investors.
Chipotle opened its first Tasty Made burger restaurant on Oct. 27 in Lancaster, Ohio. The restaurant offers a limited menu consisting of burgers, fries, sodas, and milkshakes. In keeping with parent company Chipotle's ethos of ingredients better for both humans and the environment, Tasty Made burgers feature "responsibly raised beef" and non-GMO fixings.
Tasty Made isn't Chipotle's first attempt to move beyond its signature Tex-Mex menu. The company debuted ShopHouse Southeast Asian Kitchen in 2011, which applies the Chipotle assembly-line model to noodles and rice. However, in October, Chipotle founder and CEO Steve Ells announced during an earnings call that the company "decided not to invest further in growing the ShopHouse brand." Analysts are speculating that this business could be sold or shut down, although the ultimate fate of the restaurant isn't known.
However, on Friday, Chipotle spokesman Chris Arnold announced that sales at the new Tasty Made have been brisk. "Tasty Made is off to a good start," he said. "The food has been great, and the feedback we've received thus far has been largely positive."
Chipotle has devised this burger chain as its own business struggles to retain its once-loyal customers. In October 2015, a scandal involving food-borne illness E. coli decimated Chipotle's business and its stock. Chipotle was once the most popular restaurant in the U.S. However, worries about the safety of its ingredients kept customers and investors away.
The company has embarked on vigorous campaigns to lure customers back, including Chiptopia, a three-month rewards program. Loyalty points-based programs have been a major theme for the restaurant sector this year, with both Starbucks and Dunkin' Brands implementing their own successful schemes.
However, Chipotle's ambitious promotions haven't been enough to inspire return visits. In the third quarter, same-store sales missed even Wall Street's pessimistic projections, plunging by nearly 22%.
Tasty Made is an attempt to get in on another corner of the fast-casual restaurant sector. But with the forecast of a looming restaurant recession, the timing for the venture isn't great. The upscale burger market is already crowded, with chains such as Shake Shack, Red Robin Gourmet Burgers, and Habit Burger dominating.
Don't waste your time in the fast-casual sector, and continue to stay away from troubled Chipotle. The company, a sizable chunk of which has been bought by activist investor Bill Ackman, has a bumpy road ahead.
Instead, if you're intent on betting on burgers, stick with legacy stock McDonald's. Although the company has had some misses this year, this is a stock that is not going to get burnt beyond consumption anytime soon.
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