Add stiffer competition to the list of worries at Chipotle.
Executives of the beleaguered burrito chain -- whose shares have plunged by 40 percent in the past year as a string of public health incidents crushed sales -- took to a retail and restaurant conference Wednesday to assure investors the crisis is behind it and that it's taking steps to get customers back in its restaurants. The sense of closure seems to have cheered investors: Shares rose by 6 percent.
Executives said they were "extremely confident" new safety measures would prevent another E. Coli outbreak. They're launching a marketing campaign in February to "invite customers back," though they expect it to be well into 2017 before sales recover.
It took about five quarters for sales to recover after past food-safety incidents at Taco Bell and Yum! Brands, notes Bloomberg Intelligence analyst Jennifer Bartashus. That's partly due to easier comparisons from a lower base, but it's also because American consumers tend to have pretty short memories after news headlines disappear.
But in this fast-moving industry, a year is a very long time. And competitors are moving quickly to pounce on Chipotle's woes.
During the ICR Xchange Conference this week, Chili's parent Brinker touted the success of its "top-shelf tacos" and new burritos as it revs up its fresh Mexican food at the dining chain. Now, it said about half its customers eat from its Fresh Tex/Fresh Mex category, up from just 30 percent in 2012.
Del Taco, which operates 550 restaurants in 16 states, said this week that sales at its established locations rose by 5.8 percent in the fourth quarter, partly due to moves to establish itself as the freshest Mexican food chain -- a pitch seemingly aimed right at Chipotle's market. For instance, it installed fresh coolers displaying diced tomatoes and grated cheddar cheese, which Del Taco said led to a 20 to 30 percent increase in the number of consumers who believed their freshness claims.
And Jack in the Box's Qdoba, the second-largest Mexican fast-casual chain in the U.S., has set its sights on opening as many as 2,000 locations, up from its 660 current restaurants, on the back of 9.3 percent sales growth at established locations in 2015.
Once a darling of the restaurant industry, Chipotle took off at a time when there just weren't many options for fast Mexican food with fresh ingredients. Two decades later, that outlook has changed and competitors abound.
And while restaurant customers are forgiving, they're also fickle. Take what happened to McDonald's when it took away its dollar menu and started losing customers. The rest of the industry quickly pounced on its pain, luring restaurant goers away from the hamburger chain.
Following a new turnaround plan and a successful adoption of all-day breakfast, customers are again returning to McDonald's and the market-share loss has slowed.
The difference is that McDonald's already controlled about 7 percent of the U.S. food service market, compared to Chipotle's less than 1 percent, according to Euromonitor. It will be much harder for the smaller food chain to stem long-term losses to its rivals, even if it can overhaul its food safety and marketing efforts in the short term. Its competitors are ready.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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