Chipotle showing some signs of recovery

by Monica Watrous
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During the quarter, Chipotle issued more than 5 million free burrito offers, two-thirds of which were redeemed.

DENVER – Comparable store sales tumbled 29.7 percent at Chipotle Mexican Grill, Inc. in the first quarter of fiscal 2016, signaling the fast-casual chain’s food safety crisis that began last fall is far from over. Still, results have slowly improved since the beginning of the year, said Steve Ells, founder, chairman and co-CEO of the Denver-based company.

“We began to see sales recover in the second half of the first quarter as our transaction trends reversed course from the lows we saw in January,” Ells said during an April 26 earnings call with financial analysts. “Since the beginning of February, we have seen an 18-point improvement in comp transactions compared to the full month of January.

“While we have used promotional programs to entice many of our customers to return, we are encouraged to see signs that the promotional traffic has translated into repeat paying customers. Return of customers to our restaurants improved our same-store sales comps by 11 percent from January to recent levels. Of course, we would like to see our sales recover more quickly, but we remain confident in our long-term strategy to welcome customers back into our restaurants.”

 
Chipotle comparable store sales.
During the quarter, the company issued more than 5 million free burrito offers, two-thirds of which were redeemed, said Mark Crumpacker, chief creative and development officer.

“Throughout the year, we will continue to be more aggressive than usual with our marketing, and we are considering two programs aimed at driving traffic among our loyal customers and lapsed customers, that is, customers who have not been to Chipotle in three months or more,” Crumpacker said. “Additionally, we are considering adding menu items that will appeal to our loyal or lapsed customers.”

One such menu item is chorizo, a spicy chicken and pork sausage, which was tested in Kansas City restaurants last year.

“We were prepared to expand that to a second market right as we came into this foodborne illness situation, and we tabled it so that we could put all of our focus on correcting the problem,” Crumpacker said. “But we did find that that was very, very popular with our loyal customers. In fact, for a lot of people who tried it, it quickly became their most favorite protein. And so it will be very helpful for us from a marketing perspective to bring those customers back in and make our loyal customers come more often.”

 
Chipotle tested chorizo, a spicy chicken and pork sausage, in Kansas City last year.
On Feb. 1, the Atlanta-based Centers for Disease Control and Prevention said it had concluded its investigation of two E. coli outbreaks linked to Chipotle that sickened dozens in October and November. In the midst of those outbreaks, more than 120 Boston College students were sickened with norovirus after eating at a nearby Chipotle restaurant. The company faced another setback in March, when it temporarily closed a Boston area restaurant after four employees fell ill.

“Unfortunately, some stories referred to this as another outbreak, and those headlines interrupted our sales recovery,” said Jack Hartung, CFO. “This was a disappointing setback, which caused our nationwide comp sales to worsen to around negative 27 percent for a few weeks before recovering to the low- to mid-negative 20 percent in late March…

Jack Hartung, CFO of Chipotle 

“The impact of the headlines concerning Boston taught us that the recovery can be fragile and that we need to rebuild trust with our customers, every single customer, every single day at every single restaurant.”

For the first three weeks of April, comparable store sales were down 22 percent, or 26 percent excluding the benefit of the Easter shift, Hartung said.

“The sales recovery has been uneven throughout the country,” he said. “Through the first three weeks of April, our traffic comps, excluding the Easter benefit, were negative 15 percent in the middle of the country, the Southeast and the mid-Atlantic, whereas they were down 20 percent company-wide, again, excluding the benefit of Easter. That’s about a 16-point recovery as compared to January, which means we recovered about half the lost visits in these areas.”

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