Why We Think It's a Great Idea
There's little doubt that the consistent comparable same-store sales growth from the likes of Panera (PNRA), Chipotle, and Noodles & Co. (NDLS) suggests that meals eaten outside of the home continue to rise. At the moment, we're comfortable saying that McDonald's (MCD) possesses the strongest breakfast offering with a mix of inexpensive coffees, hash browns, and reasonably priced sandwiches.
That being said, McDonald's breakfast isn't exactly the healthiest choice. The new Steak, Egg, & Cheese Biscuit sandwich has 10 calories less than a Big Mac-a sandwich notorious for its lack of healthfulness. While it is likely delicious, we don't think health-conscious consumers are looking to start the day off with such a product.
Dunkin Donuts (DNKN) also has a variety of breakfast sandwich options, but again, the health-conscious consumer is likely going to say no to an Angus Steak B N' Toasted that has 620 calories. Starbucks (SBUX) has some marginally healthier options and will likely improve its current offering, but we don't see too many organic or customizable options.
Chipotle could fill a need in the market: healthy, customizable breakfast. Sure, a competitor like Panera offers several nutritious products, but it cannot make the same claim of providing its customers with organic, sustainable food. This is exactly where Chipotle fits in.
Perhaps most interesting about Chipotle with respect to breakfast is that customers at airport shops that are open in the morning clamor for the traditional Chipotle options, according to Chairman and founder Steven Ellis. The implications of this could be huge: Chipotle won't have to invest in new equipment to make different products in its kitchen, nor would it have to train its staff to create different products. In essence, Chipotle could avoid the problems that prevent other fast food restaurants from serving breakfast all day.
The only real downside we see to serving existing offerings all day is cannibalization, as perhaps the customer who eats a burrito bowl for breakfast may not want to eat one for lunch. However, the firm could acquire customers that generally eat breakfast at home and steal share from existing industry participants. We would not be surprised to see Chipotle begin to test this concept going forward, and if it's successful, roll it out to more of its locations. Such a move could increase same-store sales growth and our fair value estimate, but it remains purely speculation at this time. We don't plan to add the company to the portfolio of our Best Ideas Newsletter anytime soon.