Chipotle sees queso as saviour after health woes resurface at a Texas restaurant

CHIPOTLE Mexican Grill, looking to finally put concerns about food safety behind it, sees the rollout of queso and other initiatives as a way to win back customers.

The melted- cheese dish, a staple of Tex-Mex cuisine, is slated to be added to Chipotle menus nationally as early as mid- September.

The company also is testing frozen margaritas, new salads and a crispy cinnamon dessert, items that eventually could get wider adoption.

Menu changes, which have been rare for Chipotle during its more than two- decade history, are part of efforts to get customers’ attention back on the food – rather than health scares.

The company suffered a fresh round of headaches last week, when a norovirus outbreak was reported in Virginia and mice were discovered at a Texas restaurant. Chipotle received a new subpoena from a US Attorney’s Office in California over the norovirus case, part of an ongoing investigation.

Last week’s headlines sent the shares spiraling to their lowest level in more than four years. They also renewed fears that the chain can’t seem to put a 2015 health scare in its rearview mirror.

“We came to the conclusion that we need new news,” Chief Executive Officer Steve Ells said on a conference call.

“Queso, we think, is going to help us with that new news, and we’re excited about the tests to come.”

Even as challenges remain, the Denver-based company showed progress on its bottom line this week. Chipotle posted earnings last Tuesday that easily beat analysts’ estimates in the second quarter. Operating margins at its restaurants climbed, a sign Chipotle is getting a payoff from higher prices and efforts to keep a lid on labor expenses.

Still, the federal subpoena, announced in a filing last Wednesday, weighed on the shares. They fell as much as 1.9 per cent to US$ 341.89 in New York. That follows a 7.6 per cent decline this year through last Tuesday’s close.

Chipotle, once a high-flying restaurant-industry darling, was hit with an E. coli outbreak in 2015 that sent its sales and stock price plummeting. In response, the company updated its safety protocols and boosted its marketing. But Ells remains under pressure to mount a sustained comeback.

Investors got a painful reminder of the health crisis last week, when Chipotle temporarily closed a restaurant in Sterling, Virginia, following a suspected norovirus outbreak. More than 135 customers fell ill after visiting the location, according to local health- department officials.

Chipotle saw a negative sales impact of about 5.5 per cent in the immediate aftermath of the incident, the company said on Tuesday. But it doesn’t expect the health scare to affect its longer-term guidance.

Adding to Chipotle’s woes, video of mice in a Dallas restaurant were shared online last week. The incidents contributed to seven straight days of stock declines for the company. —WP-Bloomberg