CHIPO­TLE PLANS TO ROLL OUT QUESO IN DEN­VER AND L.A.

Chain to test queso it wants to help com­pany over­come an­other food-borne ill­ness cri­sis

The Denver Post - - FRONT PAGE - By Erin Dou­glas

Chipo­tle Mex­i­can Grill an­nounces a big test of Gen­uine Queso in 350 stores in Den­ver and Los Angeles mar­kets — but is the buzzy new menu item enough to over­come yet an­other food-borne ill­ness cri­sis?

Chipo­tle Mex­i­can Grill on Tues­day an­nounced a big test of Gen­uine Queso in 350 stores in Den­ver and Los Angeles mar­kets — but is the buzzy new menu item enough to over­come yet an­other food­borne ill­ness cri­sis?

Chipo­tle’s earn­ings, rev­enue and restau­rant mar­gins all were up in the sec­ond quar­ter of 2017 com­pared with last year, but the ef­fect of norovirus cases linked to a store in Ster­ling, Va., won’t be known un­til the Den­ver-based com­pany’s thirdquar­ter re­sults are re­leased Oct. 24.

Di­luted earn­ings per share was $2.32 for the three months ended June 30, up 87 cents from sec­ond quar­ter of 2016, the com­pany re­ported Tues­day.

Restau­rant sales in­creased 8.1 per­cent and rev­enue was up 17.1 per­cent to $1.17 bil­lion, ac­cord­ing to Chipo­tle’s re­port. Top ex­ec­u­tives at­trib­uted the in­crease to an ag­gres­sive ex­pan­sion. Their goal is to open 195 to 210 new stores this year.

The fast-ca­sual chain opened 50 new stores in the sec­ond quar­ter and closed two, bring­ing their na­tional to­tal to 2,339.

But food-safety con­trols (in­clud­ing paid sick leave for work­ers), im­ple­mented when the com­pany was blamed for in­fec­tious dis­ease out­breaks in 2015, now face crit­i­cism from pa­trons and from the stock mar­ket. Im­me­di­ately af­ter news of the Vir­ginia out­break, shares lost as much as 7.6 per­cent of their value.

Chipo­tle founder and CEO Steve Ells blamed the Vir­ginia cri­sis on a few work­ers in a sin­gle lo­ca­tion not fol­low­ing the new pro­to­cols. As many as 135 peo­ple re­ported be­com­ing ill af­ter eat­ing at the restau­rant but only two norovirus cases have been con­firmed.

“We be­lieve some­one was work­ing while sick,” Ells said dur­ing a conference call with an­a­lysts Tues­day. “We made it clear to the en­tire com­pany that we have a zero tol­er­ance pol­icy for not fol­low­ing these pro­to­cols. When fol­lowed, they work per­fectly.”

Ex­ec­u­tives hope queso will hope the chain bounce back. Chipo­tle’s chief mar­ket­ing of­fi­cer Mark Crumpacker said that the queso-ef­fect should not be un­der­es­ti­mated. Oth­ers said they hope it changes the con­ver­sa­tion.

“Our hope is that the im­pact will fade, and the mar­ket­ing and buzz (around queso) will change the nar­ra­tive,” chief fi­nan­cial of­fi­cer Jack Har­tung said Tues­day.

Queso will hit menus in Colorado and Los Angeles on Aug. 1, and if the test goes well, will be rolled out na­tion­wide by midSeptem­ber.

The com­pany has faced a dif­fi­cult road from the 2015 food­borne ill­ness cri­sis that sick­ened more than 50 cus­tomers in mul­ti­ple states with E.coli. Its share price has

stayed around $400 per share in 2017, com­pared with $749 per share in 2015.

And, the July 17 norovirus out­break isn’t the first to be linked to the brand. In 2015, more than 120 Bos­ton Col­lege stu­dents were sick­ened by the virus, the most com­mon cause of food­borne ill­ness in the U.S., ac­cord­ing to the Cen­ters for Dis­ease Con­trol and Pre­ven­tion.

“It was very clear that pro­ce­dures were not be­ing fol­lowed,” said Scott Boatwright, Chipo­tle’s newly ap­pointed chief restau­rant of­fi­cer on the call Tues­day. “Not fol­low­ing our pro­ce­dures will have se­vere con­se­quences, and I’m bring­ing a ma­ni­a­cal fo­cus on the fun­da­men­tals of our busi­ness. This type of rigor and dis­ci­pline has been ab­sent from the brand for some time.”

In ad­di­tion to Boatwright’s cru­sade for ad­her­ence to rig­or­ous food safety pro­ce­dures, Chipo­tle man­age­ment hopes to make a re­bound with the roll-out and mar­ket­ing of queso — ex­pect to see the liq­uid cheese fre­quently in tele­vi­sion com­mer­cials — and a dig­i­tal plat­form for or­der­ing.

The com­pany plans to im­prove and ex­pand dig­i­tal and mo­bile or­der­ing, and will re­lease a mo­bile app later this year.

Ex­ec­u­tives said they want to po­si­tion Chipo­tle as a dig­i­tal leader.

“The last two (in­ci­dents of food­borne ill­ness) have been ex­tremely chal­leng­ing,” Ells said, “but we are emerg­ing as a stronger com­pany.”

Photo cour­tesy of Chipo­tle Mex­i­can Grill

Chipo­tle Mex­i­can Grill’s Gen­uine Queso will hit menus in Colorado and Los Angeles on Aug. 1, and if the test goes well, the queso will be rolled out na­tion­wide by mid-Septem­ber.

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