Bloomberg News

Chipotle Adds Organic Hoodies to Burritos to Boost Sales

January 29, 2013

Chipotle Adds Organic Hoodies to Burritos to Boost Sales

A Chipotle Mexican grill restaurant. Photographer: RGA/Redux

Abercrombie & Fitch sells sex. Harley-Davidson (HOG:US) sells rebellion. Chipotle sells idealism.

The burrito chain has long pushed sustainable food in its 1,400 restaurants. Now Chipotle Mexican Grill Inc. (CMG:US) is broadening out its message by selling organic-cotton hoodies, hosting festivals selling locavore fare and backing a dark comedy video series centered on an evil PR guy hired to defend industrial farming.

The chain managed meteoric growth for years by largely letting its menu speak for itself. Now rivals such as Yum! Brands Inc. (YUM:US)’s Taco Bell chain are encroaching. Revenue growth was projected (CMG:US) to slow to 20 percent in 2012 and 15 percent this year, compared with 24 percent in 2011, according to data compiled by Bloomberg. So Chipotle is creating a lifestyle brand to appeal to consumers who believe in sustainability. While it’s an unusual move for a restaurant chain, the likes of Abercrombie and Harley have been doing this kind of thing for years.

“It’s new territory for a restaurant brand,” said Bill Chidley, senior vice president at consultant Interbrand Design Forum in Dayton, Ohio. “It’s ambitious, but I don’t think it’s implausible that they could become a lifestyle brand.”

Lifestyle brands reflect how people want to define themselves, Chidley said. “They express our values,” he said.

The new push comes at a time of growing skepticism about Chipotle’s future. Of the 30 analysts that follow Chipotle, 73 percent rate the company hold or sell, up from about 52 percent in March, according to data (CMG:US) compiled by Bloomberg.

The shares fell 0.5 percent to $310.01 at the close in New York. Chipotle lost (CMG:US) 12 percent last year, while the Standard & Poor’s 500 Restaurants Index slumped 2.6 percent.

Lower Premium

Chipotle, which was spun off from McDonald’s Corp. (MCD:US) in 2006, also is trading at a lower premium (CMG:US) relative to its peers. During the past three years, the company traded at an average 60 percent premium to Starbucks Corp. (SBUX:US) on a price-to-earnings basis. Now the premium has slid to 19 percent.

The company’s expansion rate is decelerating -- it’s planning to increase store count by as much as 13 percent this year, compared with 15 percent last year.

The slowing growth prompted Chipotle to start selling catered food at its Colorado locations this month. It plans to expand the service to all its stores this year.

New stores are opening at lower sales volumes and there’s some cannibalization among locations, said Nick Setyan, an analyst at Wedbush Securities in Los Angeles.

“They can, and they should, spend more money on marketing,” he said.

While other restaurants, including McDonald’s and DineEquity Inc. (DIN:US)’s Applebee’s, have recently committed to serving healthier menu items and sourcing pork from suppliers who don’t keep sows in restrictive pens, Chipotle is trying to create a brand that consumers want to be identified with.

Organic Clothing

The idea for the organic line of clothing started more than three years ago when Chief Marketing Officer Mark Crumpacker realized that employees’ uniforms needed a revamp.

“I just envisioned the guy leaving McDonald’s and pulling this polyester thing off before he gets out the door,” Crumpacker said during a telephone interview. Tim Wildin, Chipotle’s concept development director, put him in touch with fashion designers Scott Mackinlay Hahn and Rogan Gregory of Loomstate, a New York clothing maker that uses organic cotton and shared the chain’s vision for sustainably sourced materials.

“It matched almost exactly with our food with integrity mission,” Crumpacker said. “Everything we’re doing should line up this way.”

Crumpacker, Hahn and Gregory were joined by Chipotle founder and co-Chief Executive Officer Steve Ells at a meeting in New York in 2009. When Ells began talking about the decline of soil fertility in the Midwest, Hahn said he knew Loomstate would mesh well with Chipotle.

Sustainability Trend

“We’re doing the same thing with clothing -- it’s all about looking at the supply chain all the way from the beginning,” Hahn said in an interview. “We’ve been trying to blend fashion, style, and trend with sustainability.”

The new uniforms were introduced to stores in 2011 and last year a consumer line with U.S.-made hoodies, T-shirts and canvas totes began selling on Chipotle’s website -- an “I’m Spicy” toddler shirt goes for $17.50, while a Dia De Los Muertos men’s tee is $22. A black, zip-up hoodie, made with pesticide- and chemical-free cotton, with “Chipotle” across the front is $65.

Employee caps were designed with a “Che Guevara-style” in mind, and shirts were inspired by the hand-drawn stream-of- consciousness phrases on Chipotle bags and ads, Hahn said.

What’s next for Loomstate and Chipotle? Kitchen accessories -- reclaimed-wood cutting boards, spoons and bowls are a possibility, Hahn said. And there’s the potential to sell Chipotle T-shirts and hoodies in retail stores such as Target Corp. (TGT:US), Crumpacker said.

‘Low-Key’

Much like Starbucks, Chipotle has largely let its menu speak for itself. In a 2005 prospectus, the Mexican-food seller said it didn’t spend substantial amounts on advertising campaigns. It called its marketing voice “low-key and irreverent” and said it relied primarily on word-of-mouth advertising and free food giveaways to spark customer interest. The 1,400-store chain doesn’t have a value menu like Yum! Brands Inc.’s Taco Bell, McDonald’s and Wendy’s Co. (WEN:US)

While Chipotle has spent relatively little on ads, its marketing budget has been increasing. In 2011, it spent 1.4 percent of sales, or $31.9 million, on marketing and advertising. Chipotle said in July it planned to spend about 1.6 percent of sales on marketing for 2012, which would be about $43.7 million, based on analysts’ average revenue estimates. Starbucks spent more than six times that, $277.9 million, or 2.1 percent of sales, on marketing in its fiscal 2012.

Cultivate Festivals

One place where Chipotle is spending money: its Cultivate festivals, where the restaurant brings in bands, craft-beer brewers and celebrity chefs. The one-day events, where Chipotle food and other organic snacks are for sale, give customers the chance to learn about local and sustainable farming. Last year in Chicago, Chipotle featured G. Love & Special Sauce and chef Paul Kahan, while also showing short films about food sustainability.

Chipotle’s comedy series, “Farmed and Dangerous,” which comes out later this year stars Ray Wise, the “Twin Peaks” and “RoboCop” actor. The show is about a group of people whose job it is to put a positive spin on the most negative aspects of industrial farming -- an issue that Chipotle also took on in its “Back to the Start” short film with Willie Nelson vocals. While the series is formatted for a 30-minute television spot, the company hasn’t decided whether it will air on television or online this spring, Crumpacker said.

Best Reputation

Chipotle’s efforts may already be working. The chain scored the highest among Mexican limited-service restaurants for reputation and food quality, beating Taco Bell, Baja Fresh Mexican Grill and Qdoba, owned by Jack in the Box Inc. (JACK:US), according to a survey from Nation’s Restaurant News and consultant WD Partners published in August.

Still, it isn’t easy to create a lifestyle brand, and Chipotle may not be broad enough to define people at every level, said Chidley, of Interbrand.

“You’re not going to put a Chipotle bedspread on your kid’s bed,” he said.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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Companies Mentioned

  • HOG
    (Harley-Davidson Inc)
    • $68.35 USD
    • 0.59
    • 0.86%
  • CMG
    (Chipotle Mexican Grill Inc)
    • $598.49 USD
    • -2.12
    • -0.35%
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