4 ways Taco Bell’s CEO could im­prove Chipo­tle

The Oklahoman - - RETAIL - BY ABHA BHATTARAI

The Wash­ing­ton Post

It’s been a rough few years for Chipo­tle. The chain’s woes, which be­gan in 2015 with a wide­spread E. coli out­break, have led to mul­ti­ple health scares and plum­met­ing sales.

But this week the fast­ca­sual com­pany fi­nally gave cus­tomers — and in­vestors — some­thing to cheer about when it an­nounced Brian Nic­col of Taco Bell would take over as its new CEO. Shares of Chipo­tle stock soared 12 per­cent fol­low­ing Tues­day’s an­nounce­ment, amid hopes of a turn­around for the strug­gling chain.

It was a telling mo­ment for the in­dus­try, an­a­lysts said, bring­ing to­gether two ri­vals that at one time seemed to have noth­ing in com­mon. Chipo­tle, founded in 1993, has long mar­keted it­self as the anti-Taco Bell, em­pha­siz­ing fresh in­gre­di­ents and an­tibi­otic-free meat. It was an ap­proach that worked for years, un­til a se­ries of food­borne ill­nesses, chang­ing tastes and grow­ing com­pe­ti­tion knocked the one­time dar­ling off its game. Shares of the com­pany’s stock have fallen nearly 60 per­cent in the last three years.

But an­a­lysts say they are hope­ful that Nic­col, who has led Taco Bell for three years, can help ad­dress some of the chain’s most press­ing prob­lems.

Here are four things the 43-year-old fast-food ex­ec­u­tive could bring to Chipo­tle.

1. Ef­fi­ciency and or­ga­ni­za­tion

First things first, an­a­lysts say: Chipo­tle needs to slow down.

The com­pany has been ex­pand­ing rapidly in re­cent years, adding dozens of new stores but not enough in­fra­struc­ture to sup­port them, says Howard Pen­ney, an an­a­lyst for Hedg­eye Risk Man­age­ment.

“Chipo­tle has been grow­ing too quickly, and with­out a game plan,” he said. “This is a com­pany that des­per­ately needs lead­er­ship.”

One of the eas­i­est ways to sim­plify op­er­a­tions and of­fer faster ser­vice, an­a­lysts said, would be to wash and prep food in a cen­tral lo­ca­tion and send it out to nearby stores. Cur­rently, each of Chipo­tle’s 2,408 restau­rants do their own prep work, such as wash­ing let­tuce and chop­ping toma­toes, said Ivan Fein­seth, an an­a­lyst for Ti­gress Fi­nan­cial Part­ners in New York.

“They have to keep to their core val­ues — or­ganic pro­duce and an­tibi­otic-free meat — but need to find a way to be more con­sis­tent and ef­fi­cient,” he said. “That’s been one of their big­gest chal­lenges.”

Nic­col’s ex­pe­ri­ence at Taco Bell, where he over­saw a com­pany twice the size of Chipo­tle with 6,849 lo­ca­tions and $10.1 bil­lion in an­nual sales, makes him a good fit, an­a­lysts said. He also helped over­see the fast food chain’s mo­bile or­der­ing tech­nol­ogy, which an­a­lysts say makes for quicker and more ef­fi­cient ser­vice.

“He has fig­ured out to make fast-food faster,” Fein­seth said, “and that’s some­thing Chipo­tle could re­ally use.”

2. More menu items

Among the big­gest prob­lems at Chipo­tle: is menu.

With few ex­cep­tions, the chain’s lineup has re­mained largely the same for 25 years: Tacos, bur­ri­tos, bowls. And while some cus­tomers like that con­sis­tency, an­a­lysts say many others are bored.

“Their menu is stale,” Fein­seth said. “Chipo­tle needs some­thing other than queso to spice things up.”

That lack of imag­i­na­tion, an­a­lysts say, has be­come a grow­ing prob­lem for Chipo­tle as a num­ber of fast-ca­sual ea­ter­ies — of­fer­ing ev­ery­thing from poke to cus­tom­iz­a­ble pizza — give cus­tomers new al­ter­na­tives for the same price.

“If you look at spend­ing pat­terns, pretty much ev­ery­body who walks into Chipo­tle is buy­ing just a bur­rito or a bur­rito bowl — and maybe gua­camole,” Schloet­zer said. “There is a huge op­por­tu­nity to add to their sales, whether that’s by of­fer­ing combo meals or new items” like na­chos.

At Taco Bell, Nic­col had a track record of ush­er­ing in new nov­el­ties and limited-time deals, like Dori­tos Lo­cos tacos, na­cho fries and “choco­ladil­las,” which are grilled flour tor­tillas filled with Kit Kats.

“Chipo­tle has lost its way and needs to be taken to the next level,” Fein­seth said.

Does that mean Dori­tos-shelled tacos may be on the hori­zon for the fast-ca­sual chain? “No, no, no,” Fein­seth said. “They don’t have to do that. There are ways to im­prove the process with­out go­ing to the Taco Bell ex­treme.

3. Break­fast

An­other ob­vi­ous way Nic­col could ex­pand Chipo­tle’s menu, an­a­lysts say, is by adding break­fast.

“There is still a short­age of pro­tein-based break­fasts avail­able in the quick-ca­sual space,” Fein­seth said. “Most quick break­fasts are things like muffins and bagels. Peo­ple want more pro­tein, and Chipo­tle has an easy so­lu­tion.”

At Taco Bell, Nic­col helped launch the com­pany’s fast-grow­ing $1 break­fast menu, and an­a­lysts say a sim­i­lar ap­proach at Chipo­tle could help the com­pany reach new cus­tomers.

“They have grills, they have tor­tillas: All they have to do is add cage­free eggs and ni­trate-free ba­con,” Fein­seth said. “Add some cof­fee, maybe oat­meal, and you’ve got a full break­fast of­fer­ing.”

4. So­cial me­dia savvy

Taco Bell in re­cent years has emerged as an un­likely so­cial me­dia dar­ling, using a mix of hu­mor, cheesy jokes (“What do you call fries that aren’t yours? #Na­choFries”) and vi­ral memes to win over mil­len­ni­als.

“Boyfriend has de­nied me @taco­bell this evening,” a user named Brandi Omega tweeted on Tues­day. “Time to find a new boyfriend,” Taco Bell tweeted back to its 1.9 mil­lion fol­low­ers. (Chipo­tle, by com­par­i­son, has 882,000 Twit­ter fol­low­ers.)

“Which­ever pub­lic re­la­tions in­tern or team of metic­u­lous, well­trained pro­fes­sion­als is in charge of @Taco­Bell is do­ing a bang-up job with a clever com­bi­na­tion of retweets, sassy come­backs, hash­tags and whim­si­cal life ad­vice,” wrote Huff­Post. “We kind of, a lit­tle bit, maybe want Taco Bell to be our best friend.”

That strat­egy has paid off, an­a­lysts said, by get­ting younger con­sumers to think of Taco Bell as a hip al­ter­na­tive to its ri­vals. And, they said, it’s a strat­egy Chipo­tle could use.

“That younger de­mo­graphic used to be Chipo­tle’s bread-and-but­ter cus­tomer — you could walk into Chipo­tle and it’d be filled with col­legeage kids,” Schloet­zer said.

“But you walk in now and it’s empty. They’ve lost that con­nec­tion.”

[PHOTO BY LUKE SHARRETT, BLOOMBERG]

A cus­tomer sits at the take­out win­dow of a Taco Bell restau­rant at in Shel­byville, Ken­tucky.

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