Are new menu items enough?

Old bur­rito fa­vorite is hop­ing to get back on track af­ter cri­sis.

The Denver Post - - BUSINESS - By Erin Dou­glas

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.

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