Chipotle sales continue to struggle

by Jeff Gelski
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Chipotle restaurant
Chipotle's comparable store sales declined 22 percent in the week ended March 7.

DENVER – Comparable store sales plunged 26 percent at Chipotle Mexican Grill in February, and yet it marked an improvement from a 36 percent decline in January, according to a March 15 filing with the Securities and Exchange Commission. The restaurant chain, still recovering from last year’s E. coli and norovirus outbreaks, now expects a loss of $1 per share or worse in this year’s first quarter.

James Marsden, Ph.D., Chipotle, KSU
James Marsden, Ph.D, new executive director of food safety

Chipotle in the SEC filing also said it had hired James Marsden, PhD., as executive director of food safety.  Dr. Marsden previously was on the faculty at Kansas State University’s Animal Science and Industry Department as the Regent’s Distinguished Professor of Food Safety and Security. He also served as the associate director of the Biosecurity Research Institute at the university.

The Centers for Disease Control and Prevention in 2015 linked food safety outbreaks that affected dozens of people to Chipotle. The CDC on Feb. 1 of this year said the outbreaks appeared to be over, but Chipotle’s sales figures are still ailing.

Comparable store sales declined 22 percent in the week ended March 7, according to the March 15 S.E.C. filing.

“We are pleased to show that over the past six months our sales have begun an upward trend, and we’re beginning to recover lost sales since the C.D.C. completed its investigation and we began actively inviting consumers back into the restaurants,” said Steve Ells, chairman and co-chief executive officer of Chipotle, at the Bank of America Merrill Lynch Consumer & Retail Tech Conference on March 16 in New York.

 

Steve Ells, Chipotle
Steve Ells, chairman and co-CEO of Chipotle

Comparable store sales, however, fell 27 percent in the second week of March after news broke that Chipotle closed one Boston restaurant. The closing came after some Chipotle workers, but not customers, became ill.

“We are proud of what our teams did in Boston,” said Jack Hartung, chief financial officer. “We are proud that they didn't work while sick. We're proud that the teams reacted quickly. We're proud that no customers were affected during this time, and so, our protocols are working.

“Unfortunately, the press got a hold of it, and it did have an impact, but we are already seeing the recovery, and so even though this shows that we took a step backwards, we are already in the last day or two seeing that the sales are recovering.”

In relation to the first-quarter loss, Denver-based Chipotle expects increased spending in marketing and promotions in the first half of 2016, according to the S.E.C. filing. The chain also expects higher food costs because of additional food safety protocols.

“Our earnings and margins are not going to be very impressive in the short term,” Hartung said. “It is worse than I thought. There aren’t new costs that crept in, just the costs that we knew were going to creep in and have a dampening effect on our margins and our earnings were higher than I thought.”

Chipotle said its free burrito offers via mobile and direct mail have been successful so far. Mark Crumpacker, chief creative and development officer, said redemption rates were 67% for the mobile offers. He expects the mail offers to have redemption rates between 20 percent and 30 percent.

Chipotle free burrito coupons
Chipotle said its free burrito offers via mobile and direct mail have been successful so far.

Crumpacker also addressed a question about how a cause for the 2015 food safety outbreaks was never found.

“We have many more fresh ingredients than a typical fast-food restaurant, and so there are potentially a lot of sources for such an incident,” he said.

The restaurant chain worked with the CDC, epidemiologists, food safety experts and local health departments, he said.

“We think we have a pretty good idea (about what caused the outbreak), but not definitely are we going to say what it was,” Crumpacker said.

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