Chipotle Mexican Grill, Inc.: ‘Better Burgers’ Is so Misguided, It’s Disgusting (CMG)

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Just after I finished writing that article on why Chipotle Mexican Grill, Inc. (CMG) has a massive PR problem on its hands, and that Chipotle stock may have seen its best days, it goes and does something really misguided. Or, rather, it is considering doing something misguided.

Chipotle Stock: 'Better Burgers' Is So Misguided, It's Disgusting

Chipotle announced a seed concept it is exploring called “Better Burgers.” It’s not like this is new to Chipotle stock, as it is also explored outside the burrito realm with ShopHouse Southeast Asian Kitchen and Pizzeria Locale.

Yet, two things immediately struck me about Chipotle stock when I heard about Better Burgers. First, this was nothing more than a PR distraction. That is, it’s a distraction as far as CMG stock investors and communications professionals are concerned. The general public may or may not agree.

The second thought was that this was a classic example of what Peter Lynch called “diworsification”. That’s when a company acquires a business, or launches one outside of its core competency.

It isn’t that a restaurant chain can’t branch out. The CMG concept is actually working beautifully at PizzaRev. I’ve been and it’s outstanding. Unfortunately, it has nothing to do with CMG. It’s actually partially owned by Buffalo Wild Wings (BWLD). In fact, CMG should spend some of it large cash hoard and just buy it out instead of re-inventing the wheel.

Now shares of Chipotle are somehow supposed to benefit by getting into the premium burger business? Has it noticed that there are so many premium burger chains that when the zombie apocalypse comes, the zombies will hit those places first and last months before they even get around to human flesh?

Chipotle Has It’s Work Cut out for It

Let me name just a few: Smashburger, In-N-Out, Five Guys, Steak n’ Shake, Shake Shack (SHAK), Habit Restaurants (HABT), and even the fast-food chains are rolling out their versions of premium burgers. Five Guys already has a thousand stores and sees another 1,000 on the horizon. Habit thinks it can plant 2,000 stores in the U.S. Shake Shack believes it can increase ten-fold from 45 to 450. In-N-Out has … oh, never mind. This chart from 2011 tells the tale, as well as this Business Insider article.

So not only does CMG stock have to completely design their concept from the ground up, test it and build the entire business, it must do so in an environment that already has strong brand loyalties, with chains that are far ahead in terms of eating up real estate.

Oh, and the burgers have to be more than good, they have to be amazing to get market share.

Meanwhile, ShopHouse has 14 stores and Pizzeria Locale has four with three more opening soon. It took five years for them to reach that point.

There’s an even larger execution problem, though. You cannot make burgers the same way you make burritos and pizza, in the assembly line manner that Chipotle and PizzaRev have perfected. Burgers really have to be grilled to order. That takes time. A bunch of chains even offer different kinds of meats — like buffalo and bison.

I can’t tell you how much I hate this idea. Or maybe I already have.

The bottom line is that this will mean nothing material to the bottom line for Chipotle stock. I don’t see the concept taking off. I don’t see too much money being spent on it.

And it doesn’t change my opinion that you should sell your CMG shares.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/chipotle-stock-cmg-stock/.

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