Vincent Shen: I guess going off of that long-term view that you mentioned,
and it's something that struck me as well, was the idea, last week we talked a little
bit about inventory, how companies try and minimize the time they hold inventory on hand,
convert that in cash or revenue as quickly as possible so they can invest it into other
projects and get better returns. A process here that with a lot of these new safety initiatives,
it seems like there's some added hand-offs for their inventory, essentially their ingredients
for their burritos and their other menu offerings. How much do you feel like that is potentially
adding to longer term cost and affecting their margins, or do you think that this is something
where longer term they need to get people back in their restaurants, to stay loyal to
that mission and then the rest will sort itself out?
Asit Sharma: Chipotle's always been very good at handling food costs. They used to be good
at handling labor costs. I'm ribbing them a little bit, they still are very good at
handling labor costs. The problem is that now you have a fully staffed restaurant that's
waiting for customers to come in. When you look at Chipotle's restaurants margins, that's
the direct cost they incur, the biggest portion of that is the labor cost. The food cost has
suffered as well, so we're seeing that inventory moving a little more slowly because, number
one, it's waiting for customers to come in and take it away. But number two, there are
these hand-offs that you mentioned, and if you picture a funnel, inventory as a funnel,
any time you have a bottleneck you're building cost in your system.
These food kitchens, if you look at it as a finance thing or an accounting thing, these
food preps, multiple food preps, the central kitchens, they represent bottlenecks in Chipotle's
system. Chipotle is trying to move those as quickly as possible, as efficiently as possible,
but at the end of the day what they need is for that throughput to return, for the lines
going out the door and for them to be focused on how fast we move a customer once they come
in through our door, move them through the line, get them paid and let them get on with
their day. That's something that will take care of itself. If they could get back to
that, the inventory will move. But it's not a huge issue for them because as I said they're
pretty good at handling the inventory, they can allow some of that to build on their balance
sheet. It won't be too much of an issue. Now there's a caveat here. That's, which every
stockholder fears, if there's another food scare that will hurt them in terms of inventory,
because their food waste will sky rocket in that instance. Whenever you have an incident
like this, forget about what's called shrinkage, which is minimal food waste. They'll have
a lot of food waste, because they'll have to go back to the drawing board. It will be
terrible for their inventory balance on their balance sheet. I think they're behind that,
but you never know, and that's the risk in holding the stock. We still won't know until
time passes, that there's not one more scare in 2016. Those prospects are diminishing,
but they're still there. Shen: Yeah absolutely, absolutely. You know
for any restaurant at this scale, any of the companies out there, even for the larger ones
that don't run into some of the same risks where they do more central processing for
the ingredients, think of the traditional fast food companies, they still have their
scandals. Overall I think I'm with you, in that the company's focus' on the right place
here. Overall I'm definitely rooting for them and will continue to be a regular at Chipotle.
Sharma: Yeah, as will I continue to patronize them. I feel safe eating the food, I think
it tastes pretty good still, so I'm going to be going back for sure.