If you live in a major city it may seem like there's a Chipotle on every corner. But Chipotle (CMG) has bigger plans to conquer the rest of the country.
The Newport Beach, Calif., burrito giant has a plan to take over North America and it all hinges on rural towns across the continent.
'Small-Town Opportunities'
During the company's earnings call, Chief Executive Brian Nicoll said that the company is raising its North American store count goal to 7,000 from 6,000, based on the success of "small-town opportunities" that are performing at or better than its traditional locations.
"People want Chipotle in their towns. The landlords want Chipotle in their centers. And we just demonstrated now we also have the small-town opportunity to add to the Chipotlane opportunity," Niccol said.
Chipotle currently operates just under 3,000 stores, so this plan is taking an extremely long view. The company said it expects to open between 235 and 250 new units this year, implying growth between 8% to 8.5%.
Niccol clarified when he says small towns, he generally means those with populations of 40,000 or more where the finances make sense.
The margins at the small town stores would be wider due to lower leasing costs, but the volumes tend to be the same as locations in cities, so the returns are higher.
Small-Town-Strategy Challenges
Such a strategy isn't without its logistical challenges as was acknowledged by Chipotle's chief financial officer, John Hartung.
"The challenge really is just to make sure that we have a strategic process or strategic approach so that we can keep an eye on these (stores)," Hartung said.
Chipotle did not immediately return a request for comment on where it might start putting these rural stores.
But Hartung did say that the company could "string a bunch of small towns together" with Chipotle's within 50 miles of each other to make sure "field leaders" can reach them efficiently.
Analysts at KeyBanc were impressed with the company's fourth quarter as well as its growth strategy.
"Chipotle’s clean balance sheet and ample access to cash are reasons why Chipotle is poised to exit this crisis on the offensive. And we see a high likelihood that Chipotle will utilize this positioning to accelerate development over the next one to two years," analyst Eric Gonzalez said.
KeyBanc has an overweight rating and $1,850 price target on Chipotle. The shares at last check were up 10% above $1,608.
