Shelly Banjo is a Bloomberg Gadfly columnist covering industrial companies and conglomerates. She previously was a reporter at Quartz and the Wall Street Journal.

Things just got ugly for Chipotle. 

The burrito chain on Tuesday said its sales plunged by nearly 30 percent in the latest quarter from the year before, an even worse decline than Wall Street expected. Overall revenue also came in lower than expected, as the company gave away free burritos and other food with hopes of luring customers back after its devastating food-safety crisis. Shares fell as much as 7 percent in after-hours trading. 

Fall From Grace
Chipotle's sales have plummeted as it tries to recover from a food-safety crisis that began last November
Source: Bloomberg

Perhaps another quarter of disappointing sales will help Wall Street start to see this company more realistically. Although analysts surveyed by Bloomberg have brought down their 12-month share-price target to $479.48, on average, from $775 last October, shares are still pretty pricey. The stock trades at 55 times forward earnings, compared with a multiple of around 30 for Panera and 37 for Potbelly. 

If Chipotle's sales are this bad, at a time when it's spending tens of millions of dollars to give away free burritos, then what's the recovery going to look like when it starts pulling back some of those marketing dollars in upcoming quarters? Yes, traffic is showing signs of recovery, which is important to regaining customers. But data from Placed, which tracks where U.S. adults are eating and shopping by collecting location data shared from their smartphones, shows that Chipotle's burrito giveaways were more likely to attract the company's least-loyal customers. In other words, it was the fickle folks that stopped going to the restaurant during the food crisis that came back to redeem those free burrito offers. The worry now is that those people might have been willing to take a free burrito, but not loyal enough to keep coming back thereafter.

On Tuesday, Chipotle shared a similar sentiment with analysts. The company said it was having the hardest time attracting loyal customers (those who visit 25 times or more a year), new customers and customers who haven't been to a Chipotle in three months or more. It will direct marketing efforts toward these groups. 

You Get What You Pay For
Free coupons helped Chipotle boost traffic at its stores, but how long can it last?
Source: Placed

Chipotle executives put a positive spin on the numbers Tuesday, telling analysts that its restaurants are "feeling busy again" and "have more energy" as promotional traffic translates into repeat paying customers. But cheerful energy is not going to be good enough to get Chipotle back on track. Before the crisis, Chipotle was a growth company, increasing year-over-year comparable sales at a rate of five to 20 percent each quarter. To regain its spot as a fast-growing chain, it has to do more than just win old customers back. It also has to keep attracting new ones. 

That's getting increasingly more difficult, especially as Chipotle's competitors pick up customers looking for alternatives. Many of the people who once went to Chipotle for high-quality fast food are looking elsewhere. Many are going to Panera Bread. 

Healthy Fare
Panera is picking up more of Chipotle's customers
Source: Placed

The number of Chipotle customers who also ate at Panera increased by 7 percent in April from a year ago, the most of any Chipotle competitor, according to data from Placed. Incidentally, Panera on Tuesday topped analyst expectations with a 6.2 percent rise in comparable-store sales in the latest quarter and raised its targets for 2016 sales and earnings. 

Panera's Eating Chipotle's Lunch
Panera's shares are up 15% in the past year, while Chipotle's stock is down 30%
Source: Bloomberg

While Chipotle executives -- and hungry Wall Street analysts -- can croon over Chipotle getting back to normal, smarter investors know that changes happen fast in the restaurant industry. By the time things simply get back to the way they were at Chipotle, many restaurant-goers may have already found something else to eat. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at

To contact the editor responsible for this story:
Mark Gongloff at