Chipotle Getting Into Burgers Isn't as Crazy as You Think

By Markets Fool.com

Chipotle was mocking burger chains earlier this summer, but now it's hoping to do the niche right. Image source: Chipotle.

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All of the trademark filings and Tasty Made chatter turned out to be right after all.Chipotle Mexican Grill(NYSE: CMG)confirmed that it will be flipping burgers at a new concept soon. The first Tasty Made -- serving burgers, fries, and shakes -- will open in Lancaster, Ohio, later this year.

Chipotle initially turned heads in March when it filed for the "Better Burger" and "BetterBurger" trademarks, fueling speculation that it would be targeting the fast-growing gourmet burger quick-service niche for its fourth concept. Foodie blog Eater thenbroke the storyearlier this month that the first store would open as early as this summer in Central Ohio under the TastyMade banner.

It was close enough. TastyMade will be Tasty Made, and the first unit will open in the fall.

This isn't Chipotle's first time branching out beyond its burrito-rolling stronghold. It introduced the Asian-inspired ShopHouse and acquired fast-casual pizza chain Pizzeria Locale. Outside of the assembly line ordering style and the penchant for fresh ingredients, you probably wouldn't know that they are Chipotle siblings. There is no fear that you'll find burger burritos on the menu, but if you want a guacamole-topped California burger, odds are -- like Chipotle -- it will cost extra.

Fries and shine

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Burgers aren't as sexy as they were when Shake Shack (NYSE: SHAK) went public early last year. There's now a glut of gourmet burger joints, and even traditional fast-food giants are wresting back market share.

The revival at McDonald's (NYSE: MCD) -- Chipotle's former parent -- is significant. It has reversed a couple of years of deteriorating store-level trends by posting three consecutive quarters of positive comps. It's probably not a coincidence that this is exactly the same streak of negative comps at Chipotle. Shake Shack's comps remain strong, but not as heady as they were last year when McDonald's and its old-school peers were just getting by.

It also doesn't help that Chipotle has been slow-footed with its other concepts. There are just 15 ShopHouse locations open since it debuted in 2011. Pizzeria Locale hast just five units in operation. None of these concepts is moving the needle for the 2,124-unit Chipotle, so why bother with the distraction of a fourth concept?

Well, let's just say that the payoff can be pretty big for Chipotle if it gets this right. It won't take long for Tasty Made to be its second largest concept. ShopHouse is a daring concept, but perhaps too exotic to go mainstream. Pizzeria Locale finds itself chasing faster-growing fast-casual speed bakers including Blaze, MOD, Pie Five, and Pieology with dozens of locations apiece.

Making a difference, one topping at a time

It can and should be different with Tasty Made. Burgers don't have the ShopHouse learning curve when it comes to customers, and Chipotle is a desirable enough tenant that it should be able to easily secure sweetheart deals from strip mall landlords to add both a Tasty Made and Chipotle to the project.

A few dozen locations might be enough to move the needle, at least in terms of perceived value of Chipotle as an investment. Shake Shack has just 52 U.S. locations, and it commands a beefy $1.5 billion market cap.

Obviously, Tasty Made isn't going to be a slam dunk. You can't just be the next Shake Shack, In-N-Out, or Five Guys. However, let's not dismiss this as the parent company losing its way or wasting its time with a concept that won't make a difference. At a time when its namesake chain continues to struggle, the smartest thing that Chipotle can do is make sure that it doesn't have all of its eggs in the same basket.

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Rick Munarriz owns shares of Shake Shack. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.