Putting David Einhorn to the taste test

October 3, 2012
David Einhorn is shorting Chipotle, on the rather dubious basis that Taco Bell is going to start seriously competing on the fast-food-which-actually-tastes-good front:

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David Einhorn is shorting Chipotle, on the rather dubious basis that Taco Bell is going to start seriously competing on the fast-food-which-actually-tastes-good front:

Mr. Einhorn, the president of Greenlight Capital, noted that Taco Bell’s new upscale menu, Cantina Bell, would lure customers away from Chipotle, which offers higher-priced options.

Can Taco Bell really lure customers away from Chipotle? I decided to find out, with the invaluable help of Food & Wine’s Kate Krader, and Reuters’s very own Anthony De Rosa.

The results? In a word, no: there’s simply no way that Taco Bell, even with its Cantina Bell menu, can hold a candle to Chipotle. If you’re used to Chipotle, you might be tempted by Taco Bell’s lower prices — but there’s no way you’ll be tempted by its food.

On the other hand, if you look at the results of polling from YouGov BrandIndex, the perceived quality gap between Chipotle and Taco Bell does seem to be narrowing, and Taco Bell is now perceived to be higher quality than fast-food chains in general.


This is not unprecedented: as you can see, at the beginning of May, Taco Bell actually scored higher on this metric, which is the result of subtracting the percentage of poll respondents who think a brand is “low quality” from the percentage who think that brand is “high quality”. But it does seem undeniable that Taco Bell is doing reasonably well these days, on the quality-perceptions front, while Chipotle’s advantage is shrinking.

Still, I very much doubt that’s going to result in any kind of exodus from Chipotle to Taco Bell — and the reason is that these chains get judged on very different criteria. Do I think that Chipotle is low-quality or high-quality? Ask me that, and I’ll compare it to the Mexican restaurants in my neighborhood. Ask me the same question of Taco Bell, however, and I’ll compare it to other cheap-and-crappy fast-food joints frequented in large part by stoners with the munchies. You could ask the same question about the business-class seats on American Airlines and the economy-class seats on Singapore Airlines: many respondents would say that American’s business class was low quality, while Singapore’s economy class was high-quality. But that doesn’t mean that they would prefer coach class on Singapore to business class on American.

In other words, there’s an important expectations game going on here. America’s consumers now take it for granted that Chipotle is really good by fast-food standards; Taco Bell’s new Cantina menu, by contrast, is basically an attempt (and not a particularly successful one, if my taste test is any indication) to bring the chain up into the realm of “maybe I could possibly eat this while sober”.

Taco Bell has something of a cult following among the young and inebriated. When “marketing strategist” Laura Ries said that a Doritos taco wouldn’t turn Taco Bell into “a more authentic Mexican restaurant”, Joseph Alexiou responded, quite rightly, that she “clearly has no clue about what attracts people to Taco Bell”. After tasting one of these abominations yesterday, I can attest that it is a truly nasty thing: an unidentifiably oleaginous brown gloop acting as glue between two sides of a radioactive-orange shell which tastes like someone dropped a pound of salt into a vat of Irn-Bru and then solidified the result.

Obviously, there is a market for Doritos Locos Tacos. But equally obviously, that market is not the same as the market for Chipotle burrito bowls. Taco Bell might do well in future, and Chipotle might do badly. But Taco Bell is no more going to eat Chipotle’s lunch than I’m ever going to touch a Cantina burrito again.


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