Chipotle is moving into the ‘better burger’ market

By Maria Lamagna
April 1, 2016



It seems Chipotle is getting into the burger game.

Earlier this month, Chipotle Mexican Grill Inc. CMG, +0.16% , which has seen a 34% dip in share prices since October because of an E. coli outbreak, filed a trademark application for the term “Better Burger,” suggesting the company is planning to open a new burger chain.

The company may be onto something: U.S. consumers having a growing desire for “fast casual” burgers, a category that includes a high-quality, usually $6 to $8 burger, from restaurants like Shake Shack SHAK, -2.30% and Five Guys, experts told MarketWatch. But Chipotle will have a lot of competition from these, plus other regional burger chains that are already beloved. (Chipotle was not immediately available for comment, but earlier this week a spokesman told The Wall Street Journal: “We have noted before that the Chipotle model could be applied to a wide variety of foods.”)

Demand for fast casual burgers in the U.S. is growing about three times as fast as demand for fast-food burgers, according to data from market-research firm Euromonitor, a pattern the firm expects to continue for the next several years. Between 2014 and 2015, the “fast casual” burger category grew about 9%, while the fast-food burger category only grew 2%.

Americans spent about $100.4 billion on fast-food burgers in the U.S. in 2015, compared to $23.1 billion on fast casual burgers, according to Euromonitor. In 2014, they spent about $98.2 billion on fast-food burgers and about $21.2 billion for fast casual.

Consumers are willing to pay more to “indulge” because they increasingly care about overall food quality and ingredients, said Darren Tristano, the president of Technomic, a research and consulting firm. Low gas prices and more consumer confidence are also helping that trend, said Caleb Bryant, a foodservice analyst at market-research firm Mintel.

About 80% of consumers who ordered a burger from a restaurant in the last month said they would be willing to pay more for one made with premium ingredients, according to a recent Mintel survey of almost 2,000 consumers. About half were interested in seeing more options of different cheeses, half said they would like to see more premium buns (like a pretzel or brioche bun) and 27% said they would like to see more burgers made with ultra-premium beef blends, such as dry aged beef. They also expressed interest in healthy side options, like roasted vegetables in lieu of fries, Bryant said.

Beef prices rose over the last two years and, in 2015 hit record highs due to droughts in the U.S. on land where cattle graze, said Seanicaa Edwards, an economist in the United States Department of Agriculture’s Economic Research Service.

The high prices caused a drop in consumer demand for beef, with more shoppers choosing chicken and pork as a substitute. Still, despite those high beef prices, the markets for both fast-food and fast casual burgers continued to grow.

Chipotle is facing some tough competition. Tristano and Bryant both said American consumers feel particularly attached to some regional fast-casual burger chains. Five Guys, Shake Shack and In-N-Out are currently expanding and smaller chains, including California-based Habit Burger, and Texas-based Hopdoddy have strong local followings, they add.

“A number of consumers see their association with brands as defining who they are,” Tristano said. “It used to be a person with a Starbucks cup. Now, it’s somebody with a Shake Shack burger.” Bryant added, “Chipotle will have to do something that sets them apart from the competition.”

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