Should Chipotle Mexican Grill Double Down On Home Delivery?
Chipotle Mexican Grill (NYSE: CMG) is struggling to grow revenues as cautious customers are staying away from its restaurants due to fears of food virus, after a major E. coli outbreak and several subsequent isolated incidents. The company is working on several initiatives to increase restaurant traffic but is going slow on restaurant expansion, since it wants to focus on improving the operations of its existing restaurants. One way of increasing revenues from existing restaurants could be to expand its home delivery initiative. Chipotle currently offers home delivery from select restaurants through its partnership with Tapingo and Postmates. However, expansion of this initiative can increase revenues for Chipotle. Home delivery is a huge opportunity in the restaurant industry as millennials prefer convenient options. Competitors such as McDonald’s have identified that home delivery orders are usually group orders leading to higher average check size (nearly double the size of the order in a restaurant).
An increased focus on home delivery can potentially increase Chipotle’s average revenue per restaurant, thus impacting its valuation positively.
You can click here to view our interactive model to analyze the impact of a higher average revenue per restaurant on Chipotle’s valuation.
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While home delivery can expand Chipotle’s customer network and lead to higher average check size, it comes with additional costs, which Chipotle might not be able to sustain at this stage and can impact the company’s profitability. . Chipotle is a small company with around 2,000 restaurants and does not have the scale of McDonald’s. Further the company is spending heavily on initiatives to regain its lost reputation after a series of food related issues. However, an increased focus on home delivery can help Chipotle grow revenues in the long term.
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