Chipotle Shareholders: Here’s Why Vickers is Right and Einhorn is Wrong
Shares in Chipotle Mexican Grill (NYSE:CMG) took a 6 percent blow in a matter of minutes earlier this week when outspoken billionaire hedge-fund manager David Einhorn blasted the Fresh-Mex food chain, explaining why he was short Chipotle and expressing concerns for the company’s future.
At the crux of Einhorn’s criticism was the perceived threat that Taco Bell poses to Chipotle. Einhorn believes the fast-food competitor, which is owned by Yum! Brands (NYSE:YUM), offers a more established, recognized product at a lower price, and that its new fresh-inspired Cantina Bell menu will prove a serious thorn in the sides of Chipotle stockholders.
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However, what Einhorn has failed to see is that the two brands aren’t direct competitors. Chipotle offers a menu of fresh ingredients that is a cut above the strictly fast-food level.
Damon Vickers, chief investment officer at Damon Vickers & Co., elaborated on that idea Thursday, explaining the fundamental differences between Taco Bell and Chipotle.
Vickers, who bought even more shares than he already owned in Chipotle after Einhorn’s comments, believes the two restaurants are “different animals” and that Taco Bell simply “can’t reproduce [the] experience” that Chipotle offers.
And Vickers has evidence to support his arguments.
He said that the supposedly new “fresh” items on Taco Bell’s Cantina menu come off “the same assembly line as a burrito” and that the ingredients are still centrally sourced, delivered to restaurant locations on what Vickers called “corporate food trucks.” Chipotle, on the hand, uses locally sourced ingredients, and in-house “chefs” who are held to higher standards than common Taco Bell employees prepare its food.
Vickers also admitted he owns shares in both Chipotle and Yum! Brands, further evidence that he believes the differences between the two are so significant that the pair can successfully coexist.