Chipotle to Cater Beyond Stores

In order to counter sluggish same-store sales performance in a cutthroat environment, Chipotle Mexican Grill Inc. (CMG - Analyst Report) is banking on a new sales generating initiative. This Denver-based company will start its catering service in its home court Colorado beginning Jan 21 and expand it across the nation in due course.

Basically, management intends to capitalize on the reputation of Chipotle’s products by offering an off-premise service. The service will allow groups of 20 to 200 guests to select meals as per their own preference as they do at Chipotle restaurants. This initiative will make Chipotle go beyond its outlets and cater to its customers in their homes, schools and offices, which will further enhance the company’s presence.

Although Chipotle’s fourth quarter 2012 revenue is expected to increase 17.2% year over year, of late, the company has been reeling under comps pressure. Its same-store sales gain of 4.8% during the third quarter marked a 650 basis points (bps) downfall year over year and 320 bps sequentially. For the fourth quarter, Chipotle is likely to post 3.8% comps growth, which will again be a sequential decline of 100 bps.

Apart from launching a catering service, Chipotle will also test a new vegetarian offering called Sofritas in San Francisco Bay Area next month. If successful in its test run, the product will be rolled out in additional markets.

Chipotle’s innovative offerings always distinguish it from its peers. It already has its ‘Food With Integrity Program’ in store that focuses on a higher mix of naturally raised pork, chicken and beef, and organic produce. It is the only national restaurant company to use fresh produce since 2008.

However, as far as catering is concerned, Chipotle is not the only company to use this as an incremental sales driver. One of its close peers Panera Bread Co. (PNRA - Analyst Report) is benefiting largely from this initiative. Panera’s catering business has expanded about 20% over the past 10 years, which is anticipated to witness a further boost from the convenient online ordering option.

There is also Jack in the Box Inc.'s (JACK - Snapshot Report) Qdoba Mexican Grill chain that offers catering services. We believe, like some of its industry equivalents, catering will prove to be a strong growth driver for Chipotle in the years to come. Chipotle currently retains a Zacks Rank #3 (Hold).