April 24 (Bloomberg) -- Standing in a line that snakes back to the entrance of the Chilango restaurant in London’s financial hub, Beth Norden eagerly awaits her weekly roasted pork belly burrito. Norden, a 22-year-old intern at the Red Cross, likes the quick service and buzzing atmosphere.
“There are so many different food choices in London, but I love Mexican -- it’s something different,” she said. “And it fills you up.”
Norden is among the growing ranks of Britons with an appetite for burritos, which is being met by a handful of young restaurateurs who have brought stuffed flour tortillas into the culinary mainstream. Fast-casual eateries like Chilango, Tortilla, and Benito’s Hat are expanding in London and making forays outside the city, to regions where beans are served on toast and the Cornish pasty is the handheld food of choice.
Their growth stands in contrast to Chipotle Mexican Grill Inc., the U.S. burrito chain that attributes sluggish sales in its six London outposts to a lack of awareness of its brand and Mexican food in general. That’s rubbish, says Simon Stenning, a director at restaurant industry researcher Allegra Strategies in London. He says Chipotle’s higher prices -- 6.95 pounds ($10.60) for most offerings -- and stark decor are turnoffs for Londoners, who prefer a more upbeat atmosphere alongside their achiote braised chicken burritos.
“Chipotle is a bit too serious -- it’s a harsh environment and not engaging,” Stenning said. “We know they have an incredible story about their food, but you go to the store and you can’t tell.”
Chipotle, based in Denver with more than 1,450 locations, will boost marketing in London to bolster its brand and lift per-store sales that are “much lower” than at its U.S. restaurants, Co-Chief Executive Officer Steve Ells told analysts in February. Spokesman Chris Arnold said the design of its restaurants “has never been a problem for us in 20 years and we don’t believe at all that it is an issue in London.”
Chipotle rose 0.3 percent to $362.38 at 9:50 a.m. in New York, extending its gain this year to 22 percent.
Since arriving in London three years ago, Chipotle has opened a restaurant in Paris and will add one in Frankfurt later this year. In an April 18 call with analysts, Ells said that while he’s “optimistic” about the international business, he’s focusing on the core U.S. market “for the foreseeable future.”
As Chipotle’s advertising budget alone exceeds the annual sales of the smaller chains, the burrito giant will probably rebound, Stenning said. For now, though, the London upstarts have the edge in the Mexican fast-casual segment, one of the fastest-growing slices of the U.K.’s 54 billion-pound restaurant sector. While Chipotle holds off on further London expansion, local chains expect to open a total of about a dozen new outlets by the end of next year.
Led by Chipotle, whose stock has more than tripled over the past five years, fast-casual eateries boosted sales 13 percent in the U.S. in 2012, while fast-food revenue -- think McDonald’s Corp. and Yum! Brands Inc.’s Taco Bell -- rose 4.6 percent, according to Technomic Inc., a researcher in Chicago. In the U.K., the fast-casual segment grew about 20 percent last year, according to Allegra.
The entrepreneurs running Chilango, Tortilla and Benito’s Hat don’t have the resources or purchasing power to match Chipotle when it comes to the provenance of its ingredients like naturally-raised meat, organic produce, and hormone-free dairy. So Chilango co-founder Eric Partaker, whose idol is Virgin Group Ltd. founder Richard Branson, says his selling point isn’t the food. Instead, it’s Chilango’s “vibrancy -- we’re happiness in a burrito,” he said over the lunchtime din of his bustling outpost in the financial district, one of five Chilango restaurants in London.
Partaker, 37, a Norwegian-American who previously worked at Microsoft Corp.’s Skype, imports habanero chilies directly from growers on Mexico’s Yucatán peninsula, yet isn’t as concerned about the origins of, say, tomatoes, which he’ll buy from Spain or wherever’s most affordable.
“When starting out there’s a natural temptation to mimic the brand of a bigger player,” Partaker wrote on his company blog back in 2009. “Resist.”
Only the extremely extroverted need apply for jobs slinging salsa: Some aspiring staffers sing a song as part of their interview. The food-and-fun formula has attracted investors including former executives of Domino’s Pizza Inc., Krispy Kreme Doughnuts Inc. and McDonald’s. Partaker just raised another 1 million pounds, which will help fund four new restaurants over the next year.
Chilango hasn’t gotten everything right. Two early locations in shopping malls outside London were shuttered, proving that Mexican is still an acquired taste in areas where burritos are known as “Mexican wraps” and include cheddar cheese, not Monterey Jack.
Brandon Stephens, founder of Tortilla -- which like Chilango first opened in 2007 -- is gambling that his burritos can travel beyond London’s city limits. This year he’ll open a kiosk outlet in the West Yorkshire city of Leeds.
Stephens, 39, a native San Franciscan who concocted the business plan for Tortilla “after many beers” one night at London Business School, said his 5.95-pound burritos deliver the quality of Chipotle for about a pound less. He’s also trying to persuade those who say burritos are unhealthy by comparing the fat and calories of his fare to that of sandwich shop Pret a Manger. Tortilla investors include Paul Campbell, the former head of U.K. restaurant company Clapham House Group Plc.
Restaurant chains frequently stumble when they venture outside their home market. Burger King Worldwide Inc.’s first foray into France failed, and it just returned in December after a 15-year absence. After pushing too fast when it got to the U.S. in 2000, Pret a Manger closed some stores to refocus.
London’s burrito boys have also tinkered with their approach. Chilango, which is Spanish slang for someone who lives in Mexico City, used to be called Mucho Mas. Benito’s Hat, one of the smaller players in the field with four London locations, has made a half-dozen changes to its regular menu, which now includes breakfast items, soups, and desserts.
Other chains play up the Mexican angle: Chilango outlets have colorful masks of Mexican wrestlers on the walls, and Corona beer bottles hang from Tortilla’s ceilings. Benito’s downplayed it initially since Mexican food had “such a bad reputation” in Britain, said co-founder Ben Fordham, a Brit who got a jones for burritos while attending law school in Texas. Now his co-founder and head chef, a Puebla, Mexico native named Felipe Fuentes Cruz, conducts monthly cooking classes.
“At first, we played up the fresh, fun food vibe -- the fact that it was Mexican was an afterthought,” Fordham, 33, said over lunch in his cramped location on Goodge Street, a lively upmarket area full of restaurants and cafes. “Now it’s all about saying we’re the most authentic. It’s a big shift.”
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