Chipotle Doesn't Even Know If Those Free Burritos Are Working

Another reason to change its strategy.

Cue the shoulder shrug. 

Chipotle has given away millions of dollars worth of free burritos in a bid to draw customers back into its stores after a debilitating food-safety crisis last year. But so far it has little to show for the burrito free-for-all, what with its sales dropping 24 percent in the latest quarter from the year before. 

Hunger Strike

Chipotle's sales dropped 24% from the year before

Source: Bloomberg

Now, there's even more evidence that all the free food isn't really moving the needle in terms of sales, and it comes from correspondence between the burrito chain and the Securities and Exchange Commission that was released on Wednesday.

Share Problem

Chipotle's shares are down nearly 50% in the past year, compared to a 3% rise in the S&P 500

Source: Bloomberg

In the exchange with the SEC dated July 1, Chipotle said it had accounted for $4 million in costs associated with giving away free food in the first quarter of 2016. But when asked to estimate what impact the promotions had on driving sales, Chipotle said it was kind of hard to tell because of all the disruption in its business. For that reason, it couldn't accurately come up with a figure, it said. 

In other words, Chipotle is spending millions of dollars on giving away free food even though it can't tell if promotions are driving revenue and probably won't in the future. 

Not Buying It

Chipotle's purchase consideration has increased, but remains well below historic levels

Source: YouGov Brand Index

This provides even more reason to change tactics in its strategy to win back customers. As I've argued, Chipotle needs to tone down the giveaways and concentrate more of its marketing power on communicating with customers.

Restaurant-goers who get a free burrito coupon might be convinced to eat at the chain once, but only customers who believe Chipotle has truly fixed its supply-chain and food-handling process will make it part of their regular routine again. 

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 sbanjo@bloomberg.net

    To contact the editor responsible for this story:
    Beth Williams at bewilliams@bloomberg.net

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