The Business CMG, better known to its customers as Chipotle Mexican Grill, owns and operates a chain of quick and casual Mexican style food restaurants. Customers are able to create up to a 1.25 pound mission burrito from a list of ingredients including chicken, steak, free range pork, beans, rice and numerous other vegetables and salsas. Catered to the everyday American, Chipotle prides itself on fresh locally grown ingredients and naturally raised meats for their products. CMG was founded in 1993 by Steve Ells, a cook himself, and first opened its doors in Denver, Colorado. It began operations in 16 locations all situated in the Colorado region. It was in1998 that Chipotle received national recognition by having McDonalds Corp. become
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One of them being valuation. CMG’s stock growth is above average competitors to Chipotle. Although they have been growing at a rapid speed, it is noted that their shares traded at a whopping 44-times 2014. While Chipotle has been growing its earnings at 28% since 2007 this does not validate such a times earnings multiple. The valuation issue furthers as financial statements show a slowing rate in growth over the last 5 years. In addition, the company’s growth could continue to slow and limit the potential growth in sales. First, the prices of agricultural commodities have begun to turn around, which means that we could see Chipotle’s margins decline. The company will be forced to decide whether to raise prices or to eat the losses. Second, the restaurant industry is extremely competitive. Although Chipotle has been able to make a name for themselves as a niche in the industry, there’s no telling if they will be able to retain their leading position. A large threat to Chipotle is that it may not be capable to sustain consistent quality and culture as it attempts to scale up. Rising commodity costs may eat away Chipotle’s profits. The rising prices of agricultural foods continue raising higher than the average indexes. Chipotle outdoes the competition by its commitment to its healthy eating brand image. However this requires fresh produce from farms within a fifty mile radius of business operations. This type of dependence on suppliers from the local markets places pressure on Chipotle and makes them susceptible to volatile costs. Rising prices prove Chipotle will need adjust its plans for expansion accordingly. Such price inflations could detract a company’s sales-growth potentials. If Chipotle cannot get efficient agreements to correct this issue there is no way to cushion the response towards price hikes.
One of them being valuation. CMG’s stock growth is above average competitors to Chipotle. Although they have been growing at a rapid speed, it is noted that their shares traded at a whopping 44-times 2014. While Chipotle has been growing its earnings at 28% since 2007 this does not validate such a times earnings multiple. The valuation issue furthers as financial statements show a slowing rate in growth over the last 5 years. In addition, the company’s growth could continue to slow and limit the potential growth in sales. First, the prices of agricultural commodities have begun to turn around, which means that we could see Chipotle’s margins decline. The company will be forced to decide whether to raise prices or to eat the losses. Second, the restaurant industry is extremely competitive. Although Chipotle has been able to make a name for themselves as a niche in the industry, there’s no telling if they will be able to retain their leading position. A large threat to Chipotle is that it may not be capable to sustain consistent quality and culture as it attempts to scale up. Rising commodity costs may eat away Chipotle’s profits. The rising prices of agricultural foods continue raising higher than the average indexes. Chipotle outdoes the competition by its commitment to its healthy eating brand image. However this requires fresh produce from farms within a fifty mile radius of business operations. This type of dependence on suppliers from the local markets places pressure on Chipotle and makes them susceptible to volatile costs. Rising prices prove Chipotle will need adjust its plans for expansion accordingly. Such price inflations could detract a company’s sales-growth potentials. If Chipotle cannot get efficient agreements to correct this issue there is no way to cushion the response towards price hikes.