On September 6th, Pershing Square reported a 9.9% stake in burrito restaurant chain Chipotle Mexican Grill. Ackman is no stranger to ‘quick-service’ restaurants, having previously waged campaigns at Wendy’s and McDonald’s. His current position in Restaurant Brands – the parent company of Burger King and Tim Horton’s – , has been particularly successful with a gain of over 150% since Pershing’s purchase in 2012.
The burrito maker is known for its healthy, all-fresh, food and is the only large ‘casual dining’ US outfit that spends more on food than on payroll. However, it has recently been hit with food-safety issues which started in the second half of 2015 when a series of foodborne illnesses hit their customers. The Denver-based company has attempted to revive sales with a new marketing campaign and rewards program, but a comeback has been slow to materialize. As a result, Chipotle’s has lost about half of its market value over the last year as its sales plunged. The collapse in the share price offered Ackman, who is a Chipotle regular, the opportunity to initiate his position.
We expect soon to hear more from Ackman on what his plans are with the company. In reporting the $1.2 billion holding he said they will discuss ways to revamp the company’s governance, operations, cost structure and strategy. Part of his plan may be to push the chain to sell locations to franchisees, a model that has reaped big rewards at some of the other chains in which Ackman’s been involved, such as his position in Burger King, currently part of Restaurant Brands.
Given his success at other chains such as Burger King, the new position could well turn out to become a much needed successful investment after all the troubles with Valeant. As a first positive, Chipotle recently announced extreme measures towards assuring the safety of the food. For example, a timer in every single Chipotle restaurant reminds the kitchen workers to wash their hands every 30 minutes. This appears to have started to reassure customers and, anecdotally, lines at the restaurants are coming back.