Queso Performance For Chipotle Said To Be 'Underwhelming'

Investors hoping Chipotle Mexican Grill, Inc. (NYSE: CMG) would see a notable boostfrom its new queso offering may want to reconsider their thesis, at least according to analysts at BMO Capital Markets. The firm's Andrew Strelzik maintains a Market Perform rating on Chipotle's stock with a price target lowered from $330 from $350 due to "underwhelming" demand for the new product.

Strelzik conducted informal surveys of Chipotle customers at more than 20 different restaurant locations across New York City to evaluate order frequency of the new menu offering. The results were "underwhelming" and may suggest that a potential comp lift from queso of 250–300 basis points won't become reality.

The survey found that only 15 percent of all orders included queso, less than half of the approximate 40 percent of orders that include guacamole. In addition, two-thirds of the orders included queso as an entree add-on, which represents a negative mix shift compared to guacamole.

Regardless, after the initial trial period, queso contributions will begin to moderate as is the case in any new product launch, the analyst added.

Bottom line, investors should consider lowering their expectations on Chipotle's ability to be successful in product innovations as a tool to drive sales. To date, the company yet to "establish a track record of developing and implementing successful new products."

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