Are new menu items enough?
Old burrito favorite is hoping to get back on track after crisis.
Almost two years after Chipotle’s E. coli crisis, the Denverbased company appears to be tiptoeing forward.
After literally giving away its food with free burrito coupons and launching its biggest marketing campaign ever in April, the company’s most recent move was to start testing new menu items in New York – most notably queso.
But, is it enough? Chipotle is projecting $1.22 billion in revenue for the third quarter of 2017. If it reaches this mark, it will be the first time the company’s revenue is back up to pre-foodborne illness crisis levels — certainly an encouraging statistic for the fastcasual giant.
“We are pleased with the path we are on, and committed to working hard to make continued progress,” wrote Chris Arnold, Chipotle director of communications, in a statement.
Yet, projected gross profit and net income for the same quarter are both still expected to be down, with a long ways to go — expected net income for 2017’s quarter three is $151 million, compared to $270 million in quarter three of 2015.
But perhaps investors and customers can find solace in Chipotle’s launch of long-desired queso, among the other test menu items — margaritas, a new salad, an avocado-citrus vinaigrette and a bunuelo dessert. These could indicate a new push towards innovation rather than crisis management.
“Queso is the most requested item that is not on our menu — and has been for many years — but is difficult to do in a way that is consistent with our food culture,” Arnold wrote.
Arnold said that most queso is made with artificial ingredients, something Chipotle strictly avoids. The test queso is made with cheddar cheese, jalapeños, tomatillos and spices. As of now, there are no plans to bring it to Denver.
The slow path to recovery for profit and income are affected by the huge amount of money Chipotle spent on marketing and food safety measures the past two years to regain consumer confidence. The company spent 4.7 percent of sales on marketing and promotions in the fourth quarter of 2016 — more than double precrisis level spending.
“We have made tremendous progress over the last year and a half, implementing industry-leading food safety protocols, strengthening our business, renewing our focus on enhancing
the guest experience we provide, and connecting with customers — both new and existing — in ways that are true to our brand,” Arnold wrote.
While by most financial measures, Chipotle seems to be on the upswing, investors’ faith has been slow to materialize. Market capitalization, a measure of the company’s value derived by shares and share prices, is only a little over half of what it was before the crisis. In the first quarter of 2017, it was the highest it has been since 2016 at $12.78 billion, but nowhere near the $22.47 billion it was valued at in 2015’s third quarter.
Chipotle’s market might be losing steam, too. Fast casual restaurants have been struggling to maintain their momentum — just a few months ago the industry took a nose dive. And Chipotle’s Colorado competitor, Noodles and Company, had a negative income for all of 2016, and is only creeping towards positive margins in the beginning of 2017.
Luckily for Chipotle, Mexican food is the fastest growing segment in the fast casual restaurant market — specifically TexMex — according to a 2015 report by Technavio, a market research company.
Chipotle’s share price has stayed around $400 per share in 2017, compared to $749 per share in 2015. The company expects to open over 200 restaurants in 2017.