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Strategy This fast-casual Mexican chain is cashing in on Chipotle's struggles — and it already triumphed in one key battle (CMG)

Moe's Southwest Grill is making the most of Chipotle's struggles, including its wobbly queso launch.

  • Published:
Bruce Schroder. play

Bruce Schroder.

(Hollis Johnson/Business Insider)

  • Moe's Southwest Grill is cashing in on Chipotle's struggles.
  • Chipotle's wobbly queso launch "couldn't have been better for us," the fast-casual Mexican chain's president told Business Insider.
  • Moe's is further trying to distinguish itself from the competition by beefing up its taco offerings and its to-go business.

As Chipotle struggles to recover following an E. coli scandal more than two years ago, one fast-casual competitor has been quick to cash in on the burrito chain's struggles.

Moe's Southwest Grill has topped Harris Poll's annual EquiTrend Study of fast-casual Mexican ratings for the last two years, following Chipotle's fall from grace. The chain has been in expansion mode, hitting 700 locations in late 2017 after three years of growth of roughly 10%. In 2017, Moe's earned nearly $716 million in systemwide sales, up from roughly $688 million in 2016.

"We've kind of had the category to ourselves," as rivals have floundered, Moe's President Bruce Schroder told Business Insider.

Prime among these rivals is Chipotle. In 2016, Chipotle's systemwide sales fell 14% following E. coli outbreaks that impacted restaurants in 14 states. In the same period, Moe's sales increased 7.5%, or $48.2 million, Nation's Restaurant News reported.

And, Schroder says, the chain was just getting started.

Chipotle's queso blunder

Moe's queso and guacamole. play

Moe's queso and guacamole.

(Hollis Johnson/Business Insider)

Initially, after Chipotle's E. coli outbreaks, Schroder said that Moe's was actually caught up in the backlash. Because both chains made burritos and other entrees to order with fresh ingredients, customers seemed worried that if a food-poisoning outbreak could happen at Chipotle, it could happen at Moe's.

Then came Chipotle's Hail Mary pass: queso. After years of saying it was impossible to create all-natural queso that would meet the company's standards, Chipotle announced that it would roll out queso across the US in September 2017.

While Chipotle had refused to sell queso, Moe's had used the cheesy dip as a weapon to attract customers away from its rival. However, according to Schroder, the company didn't panic when it seemed that Chipotle was going to take away its key advantage.

Schroder described Moe's leadership's thought process as: "'I'm not sure if they're going to be able to get it right, and if they don't, this is going to be great for us."

Chipotle did not get it right.

Customers slammed the the dip as a "crime against cheese," "expired Velveeta," and "dumpster juice." While queso did boost Chipotle's sales, it is nowhere near as popular among customers as guacamole. Instead, Chipotle's aggressive marketing efforts merely helped raise awareness of queso in general.

"Queso certainly helped us," Schroder said. "What happened is, they marketed it a bunch. And we filled a need."

"That couldn't have been better for us," Schroder added.

Domination beyond queso

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(Hollis Johnson/Business Insider)

Using queso to win over Chipotle's unsatisfied customers is just one piece of Moe's game plan. The chain is working to distinguish itself from Chipotle and Qdoba — another big-name, fast-casual Mexican competitor — in a number of ways.

For one thing, burritos are out. Long the lifeblood of the industry, customers are increasingly gravitating towards burrito bowls and tacos. While Moe's menu is customizable, the chain advertises specific menu items in a way that Chipotle does not, including its new Three Amigos tacos.

"The growth is coming from people with taco in their name," Schroder said, referring to up-and-coming chains like Torchy's and Fuzzy Tacos.

The rise of bowls, meanwhile, goes hand-in-hand with another shift that Moe's hopes to tap into: the growth of online and to-go orders.

As foot traffic flattens, delivery sales have increased by 20% over the last five years, according to industry research firm NPD Group. Bowls beat out burritos in delivery orders, according to Schroder, as they allow customers to avoid the dreaded sogginess that can doom a less-than-fresh burrito.

After three years of aggressive growth and fast-casual Mexican disruption, Schroder says that Moe's is ready to reestablish itself as a category leader in its own right.

"We've got scale, so we don't have to worry about surviving," Schroder said. "Now we can worry about thriving."