Chipotle is becoming a huge hit in small towns, and it's hurting chains like Chick-fil-A, McDonald's, and Texas Roadhouse

• Chipotle is the ninth largest restaurant chain in the US, in terms of sales.
• It's grown to over 3,200 restaurants with a strategy of building in cities with high foot traffic.
• Now, it's expanding to small towns and hurting chains like Chick-fil-A, according to Placer.ai.

After spending years growing in large suburban communities and metropolitan cities, Chipotle is going after small towns in America, according to the Wall Street Journal.

And small town locals are loving it, swapping out Big Macs and big steaks for Chipotle's burrito bowls, according to foot-traffic analytics firm Placer.ai.

Chipotle, the ninth largest restaurant chain in the US in terms of sales, is seeing success in these markets and it's coming at the expense of brands such as Texas Roadhouse, McDonald's, and Chick-fil-A, according to Placer.ai data.

Chipotle told the Journal that four of the five best restaurant openings for Chipotle in the past year occurred in smaller markets, including San Angelo, Texas.

The Texas entry was bad news for McDonald's, which is about five miles away from a Chipotle that opened in December.

McDonald's saw traffic dip 20.82% in April and nearly 30% in May, according to an analysis by Placer.ai. Popular steak house chain Texas Roadhouse, which is 1.6 miles from the new Chipotle, saw year-over-year traffic slide by 5.27% in April and by 3.92% in May 2023.

In May, fried-chicken chain Chick-fil-A took a hit when Chipotle opened a new restaurant in Covington, Louisiana, where the 2020 population was 11,564.

A Chick-fil-A less than a mile from Chipotle, saw foot traffic decrease four out of five weeks in May, Placer.ai reports. It says the biggest drop came during the week of May 22, where traffic plunged 27.33% year-over-year.

Covington's Texas Roadhouse also saw minor dips in traffic - less than 2% - for the last two weeks in May, Placer.ai said.

Chipotle is known for its innovative mobile drive-thru lanes, and easy digital ordering tools that cater to busy suburbanites and office workers.

But the chain launched its small-town growth strategy 18 months ago when executives noticed some stores in smaller cities were outperforming other restaurants, according to the Journal. The executives "started crunching numbers" on locations like Camden, Delaware, and Battle Ground, Washington, the Journal said.

Chipotle Chief Financial Officer Jack Hartung told the Journal that some of these restaurants in less populated towns are opening with two to three times the sales of an average Chipotle.

Restaurant consultant Tim Powell said Chipotle is likely getting a boost in traffic from Gen Zers and millennials, who like to support brands that share their same ethos.

"I think Chipotle is a brand that Gen Z and millennials recognize. Its higher price points and positioning as a socially conscious brand will go farther with 18-34 year-olds but not so much with rural Gen X or Boomers," said Powell, the managing principal at the industry consultancy Foodservice IP. "The latter are less intrigued with the Chipotle draw, but their kids will be."

Still, he said it's a risky move for Chipotle to expand into territories that are less dense, more fragmented, and less likely to spend money on restaurants. "I don't see how Chipotle's brand can transfer to small towns."

Chipotle isn't betting all of its growth on small towns. On Tuesday, Chipotle, which has restaurants in Canada, the UK, France, and Germany, announced plans to expand to the Middle East.

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