Chipotle Mexican Grill, Inc.: Tasty Made Burgers, Just Another Clog in CMG Stock’s Arteries

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Giving credit where it’s due, at the very least you have to admire the willingness of Chipotle Mexican Grill, Inc. (NYSE:CMG) co-CEOs Steve Ells and Monty Moran to try something — anything — to reignite the restaurant chain’s sales implosion and perhaps undo some of the 43% drubbing Chipotle stock has suffered since last October’s high.

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Some management teams would be content to do more of the same (only faster) and expect different results. Conceptually speaking, diversifying isn’t usually a bad thing.

On the other hand, of all the things Chipotle Mexican Grill could try, and of all the times to try new ideas, here in the wake of a debilitating public-safety P.R. gaffe may not be the best time for Chipotle to get into the hamburger business.

Tasty Made … The Next Frontier for CMG Stock?

You read that right. On Thursday, the Tex-Mex restaurateur confirmed it would be opening a burger house in Lancaster (near Columbus), Ohio. Dubbed Tasty Made, the menu will only consist of burgers, fries and shakes, though presumably non-dairy drinks like sodas will also be available.

The premise is reported to be akin to the one Chipotle touts. That is, fresh, real, unprocessed, responsible ingredients, though perhaps with fewer checkout skus. Ells explains:

“We think there’s great strength in that original fast food model and wanted to create a restaurant built around that. Making only burgers, fries and shakes with really great ingredients, we think we can appeal to peoples’ timeless love of burgers, but in a way that is consistent with our long-term vision.”

Chipotle Mexican Grill has not said if this is to the first of many Tasty Mades, though it’s most plausibly being viewed as a pilot program for an expansion in a new direction.

The restaurant is expected to open this fall, though to an already crowded burger market. Aside from an iconic McDonald’s Corporation (NYSE:MCD) still dominating the space, conceptually similar venues like Five-Guys and a now-86-unit Shake Shack Inc (NYSE:SHAK) are already on the scene with better-established brands.

And that’s just one of the reasons Tasty Made won’t likely do much to boost the value of Chipotle stock.

Of All the Bad Ideas for CMG …

For the record, non-Tex-Mex restaurants aren’t entirely unfamiliar to Chipotle. It operates 15 ShopHouse eateries, serving Asian food, and also operates five Pizzeria Locales.

Those aren’t startups in a saturated market, however, and they weren’t developed less than nine months after the company was identified as the source of an E. coli breakout that ended up infecting 52 individuals. Consumers are still skeptical, and the company didn’t do itself any favors by becoming indignant rather than apologetic in the aftermath of the outbreak.

As evidence of that skepticism, one only has to go back and look at the last two reported quarters since the E. coli gaffe was fully brought to light. In Q1 of this year, sales fell nearly 30% compared to Q1-2015’s top line. For the second quarter of 2016, the top line fell 17%. In both quarters, earnings fell even more than revenue did.

It’s with those numbers as a backdrop the decision to get into the hamburger business starts to make a little more sense. There’s no telling when Chipotle stock will completely shrug off the E. coli meltdown. It has survived similar missteps in the past, but for whatever reason, this one is lingering. Maybe it will never really go away. Putting a ton of new time, attention and resources into a whole new category, though, certainly isn’t going to help CMG restaurants fare any better.

Bottom Line for Chipotle Stock

Again, kudos to Ells and Moran for being aware and realistic enough to recognize something is wrong and then doing something about it; some CEOs wouldn’t even do that much.

This is a time for the pair to be doing damage control though, being seen and being upfront with consumers, employees and with owners of Chipotle stock, even if it’s just to schmooze and make it clear that the restaurant chain isn’t just a faceless machine.

Putting in all the hours needed not just to open a restaurant, but design one from the ground up isn’t the best use of time … especially when that restaurant is going to face some very tough competition.

Let’s not forget, CMG used to be part of the McDonald’s Corporation. The world’s biggest restaurant chain ended up spinning off Chipotle stock in 2006 as a way to get out of what was considered to be a distraction from focusing on its core business.

The importance of focus hasn’t changed in the meantime, for anyone.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/chipotle-stock-cmg-tasty-made-clog/.

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