Chipotle Sets Sights on Small-Town America for Expansion
Fast-casual Mexican restaurant chain strategizes to establish hundreds of outlets in smaller markets as part of growth plan
Chipotle Mexican Grill has marked small-town America as its next area of expansion.
Inverness, Florida, and Fairborn, Ohio, towns with populations from 7,600 to 35,000, are among those where the burrito chain plans to launch 700 to 800 new outlets in the future. Such expansions into smaller markets will constitute approximately one-fifth of the nearly 3,800 restaurants the company has committed to establishing across North America, according to Chief Financial Officer Jack Hartung.
Analysts believe that Chipotle's growth potential has propelled its shares to surge 53% higher this year, surpassing McDonald's, Starbucks, and other major restaurant stocks and raising its valuation to $58.7 billion. The firm's revenue escalated to $8.6 billion last year, positioning Chipotle as the 10th-largest restaurant chain by U.S. sales, as per Technomic, a market research company.
Federal data indicates that restaurant sales have remained steady this year, encouraging executives of chains to move ahead with expansion plans. Other fast-casual chains, including Sweetgreen, Cava, and Portillo’s, are also venturing into new regions of the country.
Chipotle is stretching its reach into some cities far from any of its existing outlets, as well as places with around 10,000 inhabitants, such as Newton, New Jersey, and Covington, Louisiana. Local officials stated that attracting a Chipotle could stimulate broader development in towns and offer an amenity that particularly appeals to younger residents.
In a survey conducted a few years ago, Madison, Mississippi's residents voted Chipotle as the top business they wanted to see in town. Mayor Mary Hawkins Butler said, "I think the kids got together and voted, they wanted that Chipotle so bad."
Founded by Steve Ells in Denver in 1993, Chipotle borrowed from Mexican restaurants in San Francisco’s Mission District, serving burritos assembled in a production-line manner. Traditionally, Chipotle expanded in cities, becoming a lunch favorite for office workers. The brand also spread into suburbs, introducing online-order drive-through lanes at these locations in 2019.
Additionally, Chipotle is looking towards international expansion. The company recently announced its first international franchising agreement, which will start with four restaurants in Dubai and Kuwait by early next year. If successful, Chipotle aims to open hundreds of additional outlets in the Middle East.
About a year and a half ago, Chipotle executives began analyzing the performance of the few dozen Chipotle restaurants in smaller U.S. markets, including Camden, Delaware; Staunton, Virginia; and Battle Ground, Washington. Impressed by these stores' performance, they decided last year to expand further into smaller markets.
Chipotle targeted regions of the country with an average population of 40,000 or less, taking into consideration additional factors like proximity to shopping centers and highway access. The chain intended its new branches to be about 90 minutes away from major urban areas, striking a balance between maintaining a reasonable distance from existing outlets and avoiding excessive strain on its regional managers or distribution network, as stated by Hartung.
Chipotle's emphasis on fresh food in its restaurants has occasionally led to ingredient shortages. Expanding into new areas could potentially pose supply challenges and increase costs, but the company is likely to leverage its influence with distributors to minimize disruptions, according to Bob Goldin, co-founder of food industry consulting firm Pentallect.
The upcoming Chipotle locations will have to compete for customers in towns where chains like McDonald's and Applebee's are prevalent. During uncertain economic times, customers often gravitate towards these chains in search of bargains. Chipotle has increased its prices five times since 2021 due to rising labor, food, and other costs. As a result, a chicken burrito or bowl now costs an average of $9, according to the company.
Chipotle usually makes a grand entry when it arrives in a town. The chain frequently uses banners to advertise the upcoming restaurant and invites new hires to bring their family and friends for free food.
Four of the five best Chipotle restaurant openings in the past year have been in smaller markets, including San Angelo, Texas, and El Centro, California, according to Chipotle. Some new restaurants in these smaller markets have seen sales two to three times higher than the average Chipotle. Most planned locations will include drive-through lanes for online orders.
In San Angelo, a city of around 100,000 people, Chipotle commissioned an artist to decorate a cow statue placed outside the new restaurant. Local reports indicate that customers, who previously had to travel more than 90 minutes to reach the nearest Chipotle, queued to enter the new outlet on opening day. Chipotle soon opened a second location in San Angelo.
Data from Placer.ai, which tracks people's movements via mobile app usage, suggests that the opening of a Chipotle in a smaller market usually results in a decrease in business for other restaurant chains. Sit-down chains such as Texas Roadhouse tend to see the largest declines, while fast-food outlets like McDonald's and Chick-fil-A also experience a drop.
Officials in Newton, a county seat in a less populated area of northwest New Jersey, have been trying to attract new chain restaurants to cater to community college students and employees of new high-tech manufacturing businesses. The last chain restaurant to open in the town of 8,500 was an Applebee’s about 20 years ago, said Jason Schlaffer, the town's former mayor.
While some residents were concerned about the traffic the new Chipotle would bring, Schlaffer stated that the restaurant has contributed to Newton's development and attractiveness.
"From the moment it opened, it has been busy, and it remains so," Schlaffer commented.
Jane Donadio, a 53-year-old personal trainer, has been a regular at the Chipotle in Newton since it opened last year.
"I believe it reflects a changing demographic," said Donadio, who typically orders a bean burrito and guacamole from the chain. "I was delighted to see better options arriving, regardless of the cost. I don’t opt for dollar meals."
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