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Why I'm Betting on Chipotle's Pizzeria Locale

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January 18, 2014 – Comments (1) | RELATED TICKERS: BWLD , CMG

 If anything, by partnering with Pizzeria Locale, Chipotle is conceding the fast-casual pizza space. Since Chipotle will not be getting in itself, it would rather assist a kindred restaurant company's success. If you're hoping for a boost to Chipotle's bottom line, don't expect it to come from pizza anytime soon. http://www.fool.com/investing/general/2014/01/04/the-chipotle-of-pizza-could-be-anybody-except-chip.aspx 

I think this is a shortsighted viewpoint. In all likelihood (in my opinion), Chipotle will buy out or further formalize its relationship with Pizzeria Locale. Chipotle's patience in working with Pizzeria Locale is, from my perspective, a good thing. Pizzeria Locale only has one location open, and it will not hurt Chipotle to further its stake once the Pizzeria Locale concept has developed a bit more. 

Keep in mind that it has been Chipotle's style to focus less on rapid short-term expansion and more on developing and measurably expanding a proven concept. This isn't to say that the franchising/quick expansion approach is bad, but it simply isn't how Chipotle has operated. 

Given the fact that Ells is good friends with Stuckey and Patterson (Pizzeria Locale's co-owners), I expect this relationship to be further formalized going forward. Plus, we simply don't know what the extent of the relationship is between Chipotle and Pizzeria Locale because the details were not disclosed. We do know that the two restaurants have been working together for 18 months prior to December, with the first PL opening in May 2013. I don't think this relationship should be overlooked as some sort of cop-out from Chipotle. 

Steve Ells has said that Pizzeria Locale and ShopHouse will not be significant drivers of growth (i.e. add to the bottom line) anytime soon. Same goes for international expansion. I actually prefer this, because it shows Ells is focused on developing the concepts before entering into rapid expansion (which could certainly be done given Chipotle's hefty pile of cash). I prefer slower and principled expansion over rapid expansion of unproven concepts. 

As I mentioned in my article, ShopHouse and Pizzeria Locale are expanding faster than Chipotle did in the 1990s. While it may seem "slow" today, it is important to keep in mind that Chipotle did not become a national sensation overnight, nor did the company expand beyond its means. I expect ShopHouse and Pizzeria Locale to be bigger components of Chipotle 10+ years down the road, but for now it is a little soon for people to get impatient with the company's careful development and expansion of the new concepts. 

It is a fun category to follow, and success will not necessarily be limited to Chipotle. Sally Smith and the crew over at Buffalo Wild Wings are a sharp bunch, and will likely do well with PizzaRev. I wouldn't be surprised to see B-Dubs do a full buy-out of PizzaRev at some point in the next few years. 

For now, I would say it is much too early to judge who will be the "Chipotle of pizza." I wouldn't have expected anything else from how Chipotle is working with Pizzeria Locale, and imagine we will learn more about the nature of relationship in 2014. 

Best,
David K

1 Comments – Post Your Own

#1) On January 18, 2014 at 12:38 PM, TMFPencils (99.81) wrote:

Here is a link to the article I quoted (the link in the blog post isn't working): http://www.fool.com/investing/general/2014/01/04/the-chipotle-of-pizza-could-be-anybody-except-chip.aspx 

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