In Queso Wars, Del Taco Is a Bigger Winner Than Chipotle

  • Both restaurant chains introduced queso dishes in past month
  • Goopy cheese fits better with Del Taco’s lineup, analyst says

Del Taco in Stanton, California.

Source: Del Taco

Both Chipotle Mexican Grill Inc. and Del Taco Restaurants Inc. introduced new queso dishes in the past month. But the latter chain may get more of a sales boost from the melted-cheese item than its rival.

That’s the view of BTIG LLC analyst Peter Saleh, who sees the Tex-Mex dish as more compatible with the rest of the menu at Del Taco. The California-based chain interprets Mexican food more liberally than Chipotle (in addition to tacos and nachos, its lineup includes burgers and fries). And queso -- a goopy bowl of melted cheese -- seems to fit.

“While Chipotle’s recent launch of queso has received the lion’s share of attention from customers and investors (much of which has not been positive), we believe queso could actually be a more meaningful sales driver for Del Taco,” he said in a note on Monday.

The item could contribute up to 4 percentage points in same-store sales over time to Del Taco, both by increasing traffic and the amount that customers order, he said. Saleh, who recommends buying shares of Del Taco, raised his sales estimates to reflect the benefit. He has a neutral rating on Chipotle.

Shares of Del Taco have gained 10 percent this year, compared with a 15 percent drop for Chipotle.

Unlike Del Taco, Chipotle has made all-natural ingredients a hallmark of its marketing. That created some obstacles when it rolled out queso, which is typically made with a processed cheese like Velveeta. When Chipotle’s queso debuted this month, some customers complained about its “grainy” quality.

Mark Crumpacker, the Denver-based company’s marketing chief, told employees in a memo last week that Chipotle was working to make it smoother.

“But the bottom line is that we are not going to be able to replicate the gooey consistency of the queso you might get at the ballpark or at a movie theater because those products are not made from real ingredients,” he said.

— With assistance by Craig Giammona

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