Chipotle Could Try A Breakfast Menu But It Might Be A Cooked Strategy

by Trefis Team
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Trefis
CMG
Chipotle
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Chipotle Mexican Grill (NYSE:CMG) has started selling coffee in some of its restaurants, a sign that the restaurant chain might eventually move into the breakfast segment. [1] Furthermore, the restaurant chain is also testing a breakfast menu at its outlet in the Baltimore-Washington International Airport. Chipotle does not offer breakfast presently, but the management admitted last year that the company could foray into this segment in if sales start to slow.

The move highlights how the restaurant chains move to newer dayparts as they struggle to generate the optimal sales growth. Dunkin’ Donut, for example, has been trying to boost its afternoon sales for quite some time now since the Canton based restaurant chain gets most of its sales in the morning.

See full analysis for Chipotle Mexican Grill

Although breakfast represents a sizable opportunity for Chipotle, it will not be easy for the chain to grab a market share in this segment. Not everyone who has entered this segment in the past has been successful. For example, Wendy’s introduced a number of breakfast sandwiches but could not lure enough customers.

Not So Easy

To get the customers to change their morning routines could be a big challenge. A lot of morning diners are office goers who are usually time constrained and do not want to waste time trying new options.

Currently the breakfast segment is dominated by McDonald’s which gets as much as 25% of its sales from the daypart. [2] It has a strong coffee line up through its McCafe brand, has added oatmeal in recent years and introduced a new 250-calorie Egg White Delight this year for the more health conscious customers. Moreover, the fast food giant has a ubiquitous presence making it easier for the diners to access its stores and form a ‘habit’ of having breakfast at McDonald’s.

Chipotle also faces competition from Taco Bell which started tweaking its menu last year to take on Chipotle directly. Last year, it introduced the Cantina Bell menu created with the help of celebrity chef Lorena Garcia, which was a pretty big success. Similarly, after the successful introduction of the Doritos Locos Tacos line-up in 2012, Taco Bell added Fiery Doritos Locos Tacos recently.

Taco Bell itself is testing the waffle tacos which will see the restaurant chain eventually expand its breakfast menu to about 6,000 restaurants by 2014. Items such as crunchy breakfast wrap, bite-size Cinnabon-branded cinnamon rolls, oatmeal and coffee will be offered as part of their breakfast lineup.

Similarly, Subway and Burger King have also upped their breakfast game in  recent years. It certainly won’t be an easy ride for Chipotle from here on.

We have a $394 price estimate for Chipotle, which is about 5% lower than the current market price.

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Notes:
  1. Report: Chipotle tests coffee, September 19, 2013, nrn.com []
  2. Egg McMuffin for Dinner? Restaurant Marketers Wake Up to $50B Breakfast Opportunity, May 13, 2013, adage.com []
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