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Stock of the Week: Chipotle

Are burritos inflation-proof?

Andrew Willis 28 February, 2022 | 1:16AM
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Andrew Willis: Do you know what doesn’t seem to suffer in a pandemic? Fast food. But to what extent are these burger joints making a profit while they operate – instead of just fulfilling demand?

From McDonald's to Starbucks, margins are under pressure in the fast-food industry particularly because of rising food costs and wages, and in response, menus have hiked prices by 6.0% in the last year. Equity analyst Sean Dunlop also notes, however, that one chain seems to have broken away from the pack when it comes to inflation action…

Chipotle (CMG) increased menu prices by 4% last year. Twice. In a move that suggests management sees inflation as structural, instead of temporary, they’re making moves now to maintain margins. Also, by leveraging volume, the company can help keep input costs low – contributing to solid 22% margins forecasted for the first quarter.

Investors – especially those in Canada – might be surprised to know that Chipotle is also increasingly appealing to price-sensitive clientele. Prices in the U.S. at least so far are now close to those of “mainstream” fast food joints – like Tim Horton’s or Burger King.

Chipotle’s proven that it has the chops to run an efficient fast-food business in the big leagues, and with a planned doubling of locations to 6,000 in North America alone, and new formats that include “Chipotlanes”, perhaps they could be the next McDonald’s, or perhaps a Taco Bell.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Chipotle Mexican Grill Inc1,604.88 USD-1.29Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar.ca. Follow him on Twitter @AndrewWillisCDN.

 

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