Chipotle’s comeback faces many issues
Legions of customers have been steering clear of Chipotle after a series of food contamination scares made them wary of their burrito ritual. So many of them have stayed away, in fact, that chain saw a 29.7 percent plunge last quarter in sales at restaurants open more than 13 months — the sort of nosedive that is practically unheard of in the restaurant business.
Chipotle has been playing offense for months to try to win customers back, but in the past two weeks, those efforts have gone into a new phase: The chain added a new item to its famously tight menu, launched a summerlong rewards program and released a cutesy animated video that takes shots at its competitors.
All the tactics are an effort by the chain to ensure that this incident is a regrettable footnote — rather than a defining turning point — in its extraordinary growth story. But as Chipotle takes these steps to reclaim its street cred, there are early signals that it could encounter some fresh challenges facing the wider fast-casual dining business. Market research firm NPD Group found that visits to fastcasual restaurants declined in the most recent quarter for the first time since it began tracking them in 2004. NPD analyst Warren Solochek said that dip is part of a broader slowdown in demand across the industry.
Meanwhile, Nation’s Restaurant News, an industry trade publication, found that fastcasual restaurant stocks were down 9 percent in the second quarter , on average.
“The investment community is highly skeptical at the moment,” said Jonathan Maze, a senior editor at Nation’s Restaurant News.
In other words, Chipotle is now not only up against problems of its own making, but must deal with a Wall Street that is cautious about fast-casual players and a Main Street that may be less receptive to its overtures.
Chipotle’s latest blitz to win back customers is wide-ranging. For one, it moved last week to add chorizo to its menu. The meat debuted in locations in five markets and is set to land on menus around the country later this year.
Chipotle has deliberately kept a tightly curated menu that it says allows it to maintain efficiency in the kitchen and keep lines moving quickly in its restaurant. But it opted to give the chorizo a try after it saw favorable response with loyal customers in a test last year in the Kansas City area.
On July 1, it launched “Chiptopia,” a three-month-long loyalty program in which customers can buy four entrees in a month and get the fifth free. (That’s for the entry-level, “Mild” level of the program; customers who buy enough to achieve “Medium” or “Hot” status are eligible for additional free meals.) The program is structured to reward not how many dollars you spend at Chipotle, but how many times you visit. Chiptopia is likely aimed at getting diners to again feast on Chipotle burritos out of habit, almost on autopilot.
Most recently, the company unleashed on the Internet a short animated film that, in between scenes of doe-eyed kids falling in love and growing up to build a food business, takes some shots at quick-service restaurants that serve sprawling menus and use artificial ingredients.
Chipotle has released such animated films in years past, and the company told The Wall Street Journal that it started work on this one before the food contamination problems. But it is aimed at establishing Chipotle in the minds of consumers as a place for freshness — a critical message in the wake of the food safety issues.
The film shows a girl and a boy duking it out with rival lemonade and orange juice stands, which they nurture through adulthood to become booming commercial restaurants. But, they lose their way because they rely on contraptions such as a “sparkle taste booster” and a “microwave auto heater” to make their food, and they offer crazy menu items such as bacon lemon balls and orange sliders. (It’s hard not to see that last bit as a dig at McDonald’s, which has said that an unwieldy, overly complex menucontributed to its struggles in recent years.)
The video has already been viewed over 1.2 million times on YouTube.
It’s too soon to know how much any of these latest efforts will move the needle. When the company reports earnings on July 21, a broader picture of its progress should emerge.