Brent Gaynor
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CMG: An Overstuffed Burrito?

I remember my first burrito from Chipotle (NYSE:CMG) back in 2003. I was on a business trip in D.C. and someone suggested a burrito for lunch. Being from Texas, I scoffed at the idea, but was told this place was different. Even then there were long lines waiting for this tasty burrito.

I loved it and immediately wondered if I could open one in Dallas. The ambition subsided, and I never did invest in the business beyond the occasional trade (unfortunately). Most recently, the burrito king has lost its appeal, both physically and investment-wise. As I reflect on my reasoning, I thought I would pass along my thoughts.

I no longer yearn for the burrito experience as I once did. Much like a favorite burger venue that has grown long in the tooth, I rarely crave the taste. I think there are several reasons for this.

Same Old, Same Old

First off, I only think their chicken “protein" is of note. Their other meats are stew-like or are cubed beef which really don’t appeal to me. I love steak and pork, but the shoddy preparation of their red meats along with the premium price leaves me confused.

Fast Casual = Seated Dining

Since I usually get my burrito one way, I don’t crave going there for “the same old thing.” Why would I want to spend $8+ for a meal where I have to wait 15-20 minutes to get my food during busy hours? It’s no longer “fast casual”. It’s “slow casual,” and frustrating. When the prices approach that of seated dining establishments where you can sit and get a drink while you wait for your meal, something is broken.

Sleight of Hand

They are also skimming on premium ingredients. Without a doubt they are smaller, much like cereal boxes and bags of chips have slowly shrunk 10-15% every few years. Whether it's good for the consumer’s waistline or not, it’s impacting their value proposition. If you don’t keep an eye out you may be disappointed with your meat and cheese quantities.

Where’s the Convenience?

Why make me wait to sit on uncomfortable wood seating in a cramped environment when I could order from my phone in the comfort of my climate controlled seats and my own personal music? I think this is a mis-step for them along with perhaps not exploring some sort of UBER for burritos. They claim they don’t offer drive-through’s due to the branding and want customer’s to get the “Chipotle Experience”, but I submit that 99% of the experience comes as a 3lb slug of food wrapped in foil.

Limited Vertical Expansion Opportunities

Their other efforts are half-baked. Pie-Five is nowhere near the sensation of Chipotle. The crust isn’t gourmet and the toppings don’t integrate well with the cheese and sauce. Leaving a product that is rather one-dimensional. As such, they need a new category. Other ethnic foods are tough. Chinese would be very challenging and I don’t think Indian food has yet the same adoption or opportunity yet in the US. They need a flavorful comfort food that people will pay $8 or more for per.

I’d love to see them have burritos to my door. Whether delivered by a 3rd party Uber or Amazon (NASDAQ: AMZN) burrito drone a Chipotle food truck army that roams the neighborhoods and cities based on daily interest, but it's just not going to be worth that much of a premium to me.

Technically, Chipotle is breaking down as investors are seeing CMG’s costs rise and same store sales stagger. I think this is due to the model. They can’t move enough customers through the lines during peak hours, and others, like me, simply are either bored with the mega-ritto, or don’t want to wait in line.

As a current investor, if it breaks $600 in earnest I’d start thinking about my time horizon and how long I was planning on holding the position. If I was looking at entering and still bullish about their prospects, I’d look for CMG to get back to $550 or even $500 before considering owning it.