Brian Sozzi: 3 Reasons Why Chipotle Mexican Grill May Not Replicate Its 2014 Success

Brian Sozzi of Belus Capital Advisors wrote an article on The Street detailing three reasons why Chipotle Mexican Grill, Inc. CMG is unlikely to replicate its success seen in 2014 in the coming year.

Prime Real Estate Harder To Find

According to Sozzi, Chipotle Mexican Grill has already doubled its company-owned restaurants in operation since 2009. The company has “aggressive” store opening plans in the coming year but so do its peers including Starbucks Corporation SBUX and Panera Bread Co PNRA.

Sozzi does note that higher rent rates haven't yet made a dent on the company's operating margins that have actually improved in 2014. However, fewer prime real estate opportunities and upward pressure on rents may haunt Chipotle Mexican Grill in the coming years.

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Shortage Of Top-Performing Employees?

Chipotle Mexican Grill's “secret sauce” consists more of fresh ingredients, wrote Sozzi, as its employees play a big role in the company's success. Chipotle Mexican Grill's superior compensation package relative to its peers such as McDonald's Corporation MCD along with the company consistently promoting employees to more senior jobs has created a set of challenges.

Top U.S. employees are being tapped to lead the company's expansion in the United Kingdom and France, removing them from the U.S. scene. Sozzi states that, “having to seed their international locations and new concepts with employees from their top Chipotle locations could eventually hurt the core Chipotle brand.”

Price Increases Won't Be Easy To Pass

Chipotle Mexican Grill's profit margins fell to 65.7 percent in the third quarter, down from 67.9 in the second quarter of 2012. Meanwhile, average checks rose 2.5 percent and 6.3 percent in the second and third quarters, respectively, due to a menu price hike that resulted I a “minimal impact” on customer habits.

Sozzi doesn't see Chipotle Mexican Grill raising its prices in 2015, resulting in slower sales growth in the coming year. The company has already issued guidance and expects same-store sales in 2015 to increase in the low-to mid-single-digit percentage range and sales will decline in the second quarter as the price increases “run their courses.”