Shares of Chipotle, the Mexican food franchise that led the "healthy fast food" boom in the United States, plunged more than 18% in a single day on the 30th local time.
Chipotle, which began in the United States in 1993, is a brand that serves Mexican dishes such as burritos and tacos. Its hallmark is the ability to add a variety of toppings to suit consumer tastes, and it grew rapidly as it gained popularity with America's younger generation. It listed on the New York Stock Exchange in 2006, and in 2011 was added to the large-cap-focused S&P 500 index. It currently operates more than 3,800 stores in seven countries, including the United States, Canada, the United Kingdom, France, Germany, Kuwait, and the United Arab Emirates. Next year, SPC Group, which operates Paris Baguette, plans to open its first locations in Seoul and Singapore.
On the New York stock market on the 30th, Chipotle closed down 18.2% from the previous day. At one point intraday, the loss reached 22%. It was the biggest one-day drop in about 13 years since July 2012. About $9 billion (about 12 trillion won) in market value evaporated in just one day. Even when norovirus and E. coli were found in Chipotle's food in 2015, the drop was not this steep.
Chipotle Chief Executive Officer Scott Boatwright said, "We are not losing consumers to competitors; we are losing them to grocery stores and home-cooked meals," and noted, "Millennial and Gen Z consumers between 25 and 35 are cutting back on dining out itself." In other words, rather than choosing another restaurant over Chipotle, a "consumption cliff" is emerging in which consumers forgo dining out altogether because they cannot afford dining expenses.
In U.S. academia, areas where fresh food cannot be purchased are called food deserts. It is a concept that refers to vulnerable areas with poor access to ingredients. Young consumers living in food deserts routinely consumed relatively unhealthy foods such as hamburgers, chicken, and pizza. Chipotle raised its profile by offering them the option of "healthy fast food." The pitch was that "for just $3 (about 4,000 won) more than a Big Mac hamburger, you can eat something far more valuable nutritionally." According to food media outlet Food & Wine, as of May this year the average price of a McDonald's Big Mac à la carte in the United States was $5.79 (about 8,260 won). Chipotle's chicken bowl runs about $9.35 (about 13,340 won).
As this strategy coincided with the massive liquidity (funds) released into the market during the pandemic, Chipotle soared. Soon, similar concept brands that touted premium and healthy images, such as the Mediterranean-focused franchise Cava and the made-to-order salad franchise Sweetgreen, emerged in succession. They claimed to be fast casual dining, offering food as quick as fast food but healthier at reasonable prices.
Gen Z and millennials remain Chipotle's core consumers. According to Chipotle, about 40% of sales come from households with annual incomes under $100,000 (about 137 million won). CEO Boatwright said this group "has faced several headwinds since last year, such as unemployment, the burden of student loan repayments, and slow real wage growth," adding that "the fast casual institutional sector is seen as unpopular and unaffordable."
So far this year, Chipotle has cut its annual outlook for three consecutive quarters. It said same-store sales rose just 0.3% throughout the third quarter. That fell well short of market expectations for a 1.3% increase. Visitor transaction counts fell 0.8%, marking a third straight quarterly decline. While higher prices amid inflation slightly lifted revenue, customer traffic to stores thinned. Chipotle itself projected that annual sales would not be flat but would decline by a low single-digit percentage. According to Reuters, at least 19 securities firms lowered their target price for Chipotle in quick succession.
The shock triggered by Chipotle spread across the industry. Rival Cava fell 8% the same day. Sweetgreen also slid 6%. According to The Wall Street Journal (WSJ), as of the close on the 30th, Sweetgreen's share price had plunged 80% from the start of the year. Cava is down 51% this year. Chipotle is likewise down 44% to 45%. By contrast, value-focused Burger King and Domino's Pizza beat growth estimates and saw their shares rise.
Business network CNBC, citing Morgan Stanley, said, "The story in the fast casual restaurant industry is 'This Season's Halloween Scare,'" adding, "Income polarization is becoming clear, with upper-income consumers still opening their wallets while those at or below the middle class tighten their belts."