RESTAURANT INSIGHTS | RED FLAG #3 (BROS), CMG, MCD & DNUT - 2023 02 27 18 22 49


In the early days (circa 2010), BROS started selling "Ice-infused Red Bull" and got in legal trouble for it. Now 25% of sales are Rebel energy drinks, which has some brand affinity in its core market but not new markets. The energy drink category is very competitive; how much staying power does BROS have?  In our BROS SHORT deck, we highlighted several "RED FLAGS" from management to aggressive accounting.

I'm highlighting RED FLAG #3 this AM. In 2022, management wanted you to believe that restaurant-level margins only declined 50bps (after adding back a 150bps increase in D&A) when in reality, restaurant-level margins declined 210bps in 2022 and 570bps since 2020.  Adding back D&A allows the company to claim they are hitting its "contributions margin" targets. D&A has real economic costs, and looking the other way will not generate real economic profits. The current fully-diluted market cap is $5.4 billion, and we see a 50% downside from current levels.  


RESTAURANT INSIGHTS | RED FLAG #3 (BROS), CMG, MCD & DNUT - 2023 02 28 7 01 23     

CMG'S Digital New Product

As another digital exclusive, Chipotle's Tik Toc famous Chipotle-Honey Vinaigrette dressing will be available as a side option for all Quesadillas. CMG's digital business is over $3 billion in revenue and represented 39.7% of sales in 4Q22 vs. 41.9% in 4Q21. Digital peaked at 60.7% in 2Q20.

CMG announced yesterday it would introduce the new Fajita Quesadilla on March 2 as a digital-only menu item on the Chipotle app and Guests can get Chipotle Quesadillas with Monterey Jack cheese, their protein of choice, and fresh fajita veggies via Chipotle's digital ordering channels. The Chipotle-Honey Vinaigrette dressing will also be offered as one of the three included side options guests can select for all Quesadillas on the Chipotle app and In late 2022, TikTok creator Alexis Frost reviewed a Chipotle Steak Quesadilla with Fajita Veggies, dubbing it a perfect "10" for her 2.4 million followers. Fellow food critic Keith Lee stitched Alexis' TikTok with a video of himself sampling the Quesadilla with a DIY vinaigrette hack made by combining Chipotle-Honey Vinaigrette dressing and sour cream. Keith's coveted "10 out 10" rating of the "hack" flooded the feeds of his more than 10.7 million followers, and the entire platform took notice. In the week following Alexis and Keith's videos going live, Chipotle saw more than 30.6 million views, 3.7 million likes, 47,200 comments, and 69,500 shares of viral TikTok content about the Steak Quesadilla with Fajita Veggies.

Five New Fajita Quesadillas

  • Steak Quesadilla with Fajita Veggies
  • Chicken Quesadilla with Fajita Veggies
  • Barbacoa Quesadilla with Fajita Veggies
  • Carnitas Quesadilla with Fajita Veggies
  • Sofritas Quesadilla with Fajita Veggies

Each Hand-Crafted Quesadilla is served with three sides. The Chipotle-Honey Vinaigrette dressing will be available as one of the three included side options on the Chipotle app and starting March 2.


Original Glazed, Chocolate Iced with Sprinkles, and Raspberry Filled donuts will be available at the selected locations.

Krispy Kreme (DNUT) rallied after McDonald’s announced it would expand its test of the brand's donuts at its restaurants. MCD said that the donuts will become available at 160 restaurants in Kentucky starting in March. The expanded test came after a much smaller-scale rollout in October 2022. While the previous test was confined to a small batch of Louisville-area locations, the latest rollout expands to more Louisville restaurants and a number of McDonald’s locations in Lexington, Kentucky. 

RESTAURANT INSIGHTS | RED FLAG #3 (BROS), CMG, MCD & DNUT - 2023 02 27 18 23 26