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Del Taco CEO: Rising Avocado Prices Are A 'Structural Advantage'

Del Taco CEO: Rising Avocado Prices Are A 'Structural Advantage'

Del Taco Restaurants Inc (NASDAQ: TACO), an operator and franchiser of Mexican-themed dishes operates more than 500 restaurants mostly in the West Coast and is valued at $537 million. By comparison, Chipotle Mexican Grill, Inc. (NYSE: CMG) boasts more than 2 thousand locations and is valued just shy of $9 billion.

So why is it that Chipotle is worried about rising avocado prices and the impact on its margins while Del Taco isn't? The company's CEO John Cappasola explained how this is possible in an interview with CNBC's Jim Cramer.

Rising avocado prices are in fact a "structural advantage" for the company because it works with fresh avocados in its stores every day, the executive explained. By contrast, its peers in the Mexican-themed restaurant segment make use of a "middleman" who chops and slices the avocados, puts them in a bag and then ships each bag to restaurants.

"We don't do that," he continued. "We take [the avocados] inside and we do the chopping and the slicing and the grating and the grilling."

The majority of Del Taco's stores are open 24 hours, which implies that workers can perform all the chopping, slicing, grating and other prep work during non-peak times that can be ready for peak hours. This is how Del Taco has been operating for years, Cappasola exclaimed.

As such, Del Taco can make claim to providing "quality under the same roof" while also passing on some of the savings in costs to consumers. The executive believes that it offers the "value and affordability" of a traditional fast-food store but with the added bonus of quality that one won't expect from a fast-casual restaurant.

All of this is vital to take market share away from its bigger rivals, especially Chipotle, the executive added. But first, the company needs to expand its footprint and do so carefully. The company is currently expanding its brand presence in the western 30 states before fully expanding to the East Coast.

"We're really confident that, over time, that balance is the right thing to do for our business and it'll eventually accelerate franchise growth over the long run," the executive concluded.

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