The Daily Dose: Fast Food Wars Are Getting Bloody
I think the topic of fast food remains incredibly relevant today, even though earnings reports from Chipotle (CMG) and McDonald's (MCD) are no longer fresh from the oven. There is something fundamental happening in this country, a real movement on finding the origin of what's being ingested inside of restaurants and bought to cook at home from supermarkets. I see the interest by consumers on food knowledge on Twitter and Facebook. I hear executives at the fast food giants trying to unwind old business models through newly launched marketing campaigns.
To understand how to invest in consumer goods, one has to understand the war playing out between a Chipotle and McDonald's. I will even toss Starbucks into the mix. I believe within the next 12 months, the company will be pressured by consumers to move to a GMO-free menu, at a cost to near-term profit margins.
The Stock Analyst's Guide to Why Chipotle is Destroying McDonald's
1. Lines are fast at Chipotle and slow at McDonald's. People want their fast food fast.
2. You get your food with a smile at Chipotle, and McDonald's just want to get you out the door.
3. You don't leave Chipotle smelling like the food. With McDonald's, you do.
4. The seating at Chipotle is set up to drive conversations among groups in afterhours.
5. Chipotle will have a non-GMO by year-end. Who knows what McDonald's stuff is made from?
6. Chipotle's uses locally-sourced veggies in season, building ties with the community and giving it something healthy to market.
7. You could see people prepare your food at Chipotle. At McDonald's, it's all made in the back and pulled out of packages.
8. It's socially cooler to share on Twitter or Instagram that you went to Chipotle, not McDonald's.
Will Chipotle Replace Chinese Takeouts?
Chipotle will be opening more restaurants in 2015 compared to 2014. It's pushing forward with opening more ShopHouse', its Asian-themed dining chain that totals eight locations in Los Angeles and Washington, D.C. The company declined to confirm their intentions, but they did hint at it on the earnings call. However many ShopHouses they open in 2015, it's another healthier fast food option that McDonald's is going to have to contend with.
I think it's going to be very important for Chipotle to roll this chain out, as well as its other baby brand Pizzeria Locale. The company admitted it had trouble finding new, prime real estate for the Chipotle brand. It already has eaten up many of the top spots.
Side Note
I don't like it when companies get cocky after having serial strong quarters. We are hearing a much more combative tone from Chipotle in the past six months against McDonald's. I have never seen such outward aggressions before. It would be like Apple (AAPL) slamming Microsoft (MSFT) in an interview. I would prefer that the company keeps its head down and focuses on what made it so strong, and how it could continue to win.
Other Matters in Consumer Goods
Diaper sales from Kimberly-Clark (KMB) were ugly, highlighting continued budgetary constraints on the middle class. I would listen into what Procter & Gamble (PG) has to say later this week about diaper sales. It could shed light on the upcoming holiday season.
At the time of publication, Sozzi has no positions in any securities mentioned.