The Fast and the Casual: Is Taco Bell Catching Up to Chipotle?

Key Points

• Chipotle reported Q4 2024 earnings results which had restaurant comparable sales (comps) growth of 5.4% YoY, which was short of the 6% target.
• Chipotle had hit 11.4% YoY comps in Q2 2024 before Starbucks poached CEO Brian Niccol.
• Yum! Brands-owned Taco Bell improved its comps to 5% in Q4 2024, up from 4% at the beginning of the year.

There is a clear distinction among consumers between fast food and fast casual food. The latter is more expensive and arguably more nutritious and delicious. In 2024, fast-casual restaurants like Chipotle Mexican Grill Inc. NYSE: CMG and CAVA Group Inc. NYSE: CAVA in the retail/wholesale sector were posting comparable (comp) store sales year-over-year (YoY) growth in the 11.4% to 14.2% range, while fast food restaurants like Yum! Brands Inc. NYSE: YUM owned Taco Bell, and Pizza Hut struggled with negative to 4% YoY comps sales growth. The tide may be turning for fast food as Taco Bell comps rose to 5% and Chipotle comps fell to 5.4% at the end of 2024.

Yum! Brands: Taco Bell Is Making a Run Past the Border   

Yum! Brands operates Taco Bell, KFC, Habit Burger, and Pizza Hut brands. Pizza Hut has been the weaker of the two when it comes to growth.

Taco Bell started 2024 with 4% YoY comp sales, which gradually improved to 5% by Q4.

In worldwide system sales, KFC grew 6%, Pizza Hurt grew 3%, and Taco Bell grew 14% YoY, excluding foreign currency translation.

Comp sales represent sales from stores opened at least a year, whereas worldwide system sales include all stores under a brand, including newly opened stores.

Solid Improvement Towards Year-End

Yum! reported Q4 2024 EPS of $1.61, beating consensus estimates by a penny. Revenues rose 16% YoY to $2.36 billion, meeting consensus estimates. Yum! opened 1,804 gross units, leading to a 5% YoY unit growth. Digital system sales grew 15% and exceeded $9 billion, with a digital mix surpassing 50%.

Taco Bell Exceeds Milestones in 2024

Taco Bell stores grew to 8,757 in 2024, up from 8,564 in 2023. Company-owned Taco Bell restaurant's margins were 24.4%, up 240 bps YoY. Taco Bell surpassed $1 billion in core operating profit and generated over 50% of system sales through digital channels.

CEO David Gibbs commented, “… generating more than $1 billion in core operating profit from the Taco Bell Division for the first time. Taco Bell US delivered an incredibly strong year and one that significantly outperformed the industry, showing clearly that Taco Bell is a category of one brand.”

Yum! provided its long-term financial target metrics it can achieve over an extended period. The company targets 5% unit growth, 7% system sales growth and at least 8% core operating profit growth, excluding FX and 53^rd week.

Chipotle: A Short-Term Dip in the Long-Term Picture   

Chipotle posted comps of 11.4% YoY in its Q2 2024, riding high before its CEO Brian Niccol was poached by Starbucks Co. NASDAQ: SBUX.

Then, comps experienced a downturn in the following quarters, hitting 5.4% in Q4 2024.

While Taco Bell improved, Chipotle degraded.

However, this could be a temporary blip in the big picture.

Chipotle Still Posted Double-Digit Growth

For Q4 2024, Chipotle posted EPS of 25 cents, beating consensus estimates by a penny. Revenues grew 13.1% YoY to $2.85 billion, matching consensus estimates. Comp sales grew 5.4% YoY despite expecting comps at 6%. Comps were driven by 4% growth higher transactions and a 1.4% YoY increase in average check. Digital sales represented 34.4% of total food and beverage sales.

Chipotle Targets More Chipotle Lanes

One of the key advantages of Taco Bell is the speed and convenience of picking up orders through the drive-through. Chipotle CEO Scott Boatwright confirmed that the company is targeting 315 to 345 new openings in 2025 with a focus on 80% of them having drive-through Chipotle Lanes, “I'm excited to share that we recently surpassed our 1,000th Chipotle lane, and now this drive-through format makes up over 25% of our restaurants.”

Boatwright added, “On average, the Chipotle lane takes less than 30 seconds to complete the order pickup process. The added convenience has been incremental, as Chipotle lanes continue to generate better revenues, margins, and returns than non-Chipotle lanes opened at the same time. It can also be seen in the mix of business as Chipotle lanes have a larger pickup mix, mostly offset by a lower delivery mix.” The company guided comp growth to be in the low to mid-single digits in 2025, which didn’t go over well with the stock as shares rug pulled in the post-market as low as $52.20 briefly before bouncing back up to $57s the following day.