Before it was hit by the E. coli food virus, Chipotle Mexican Grill ( CMG ) had carved out a strong position for itself in the “fast casual dining” restaurant segment. Its “Food with Integrity” tag line and use of high quality ingredients without artificial preservatives were attracting the health conscious millennials. However, after significant reputation loss due to a food virus, the company now also seems to be having a perception issue. Recent surveys reveal that several customers perceive Chipotle to be a “fast food” place (similar to McDonald’s) where they can grab food and go and not a fast casual dining experience. This perception can lead to a belief that Chipotle’s food is expensive since fast food places offer value meals which are served quickly. The company’s recent price rise also did not show expected results, indicating that this perception can make it difficult for Chipotle to lure customers back to its stores.
Wall Between Fast Food And Fast Casual Dining Restaurants Thinning
While Chipotle already seems to have a perception problem, competitors are making it difficult for the company to retain its fast casual dining tag. McDonald’s is actively introducing “gourmet food” at its stores with fresh ingredients which is priced higher, along with its value meals. Several other restaurants such as Burger King and Dunkin’ Donuts are also moving towards preservative free food. With their healthier offerings, fast food restaurants are now entering the space occupied by fast casual chains and the wall between these two categories is likely to fall in 2017 . This could be concerning for Chipotle especially if it is categorized as “fast food” by customers during this transition phase. The company is already spending heavily on marketing and promotion to lure customers back to its stores. If these expenses do not translate into higher revenues, Chipotle’s margins could suffer. On an average, a customer spends around $10 at a Chipotle restaurant per visit. This number is much higher compared to the $4 figure for McDonald’s. With its focus on healthy gourmet food along with its existing value meals McDonald’s is able to serve both price and health conscious customers. However, Chipotle is a fast casual dining destination where the average price of a meal is bound to be higher due to the better quality of ingredients used. A perception that Chipotle is a fast food establishment just like McDonald’s (and not the other way round) can make it difficult for consumers to accept Chipotle’s pricing and drive them away from its stores.
The restaurant industry is changing as traditional fast food companies look at healthier food options and merge with the fast casual dining segment. Chipotle, due to its food virus issue, seems to be losing out in this transition as it looks to re-establish itself as a strong player in the fast casual dining segment.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid Small Cap | European Large Mid Cap