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

Bill Ackman is right about one thing: A board shakeup is a long time coming for Chipotle Mexican Grill Inc., the crumbling burrito chain in which the activist investor took a 9.9 percent stake earlier this year. 

How Low Can It Go?
Chipotle's shares are down 43% percent in the past year as the burrito chain struggles to win back customers after last year's food-safety crisis
Source: Bloomberg

But the rest of Ackman's argument for investing about 10 percent of his fund's capital into Chipotle needs some work -- especially as the struggling hedge-fund manager could badly use a win right now, according to a recent assessment of his portfolio by fellow Gadfly columnist Tara Lachapelle.

Burgers and Burritos
Burger King's parent company and Chipotle are Ackman's biggest long investments as of now:
Source: Bloomberg
*Includes common shares and shares under purchase contracts

On Friday, The Wall Street Journal reported Chipotle and Ackman are nearing a settlement that could give Ackman’s Pershing Square Capital Management LP "a say in the board room." Shares in Chipotle rose 3 percent on the news.

The article didn't provide details on how many board seats Ackman might win. It also didn't say whether the company would split the roles of chairman and CEO or get rid of its co-CEO structure -- measures for which shareholders and corporate-governance firms have agitated. 

But as I argued in May, moves to shake up Chipotle's entrenched board are a long time coming. A fifth of shareholders at Chipotle's latest annual meeting voted to oust two long-tenured directors, and 60 percent voted for a measure giving them more power to change the board's makeup -- both signs of dissatisfaction with the company's leadership after its food-safety crisis. 

Seeing Red
Chipotle's sales have declined by more than 20% year-over-year for 10 straight months
Source: Chipotle

It shouldn't take much to improve the board: Nearly all nine members have ties to co-CEO and chairman Steve Ells, who now owns less than 1 percent of the company's shares and has much less clout financially than do many other founders who lead their companies. 

New board members with experience in marketing, crisis communications and technology will be key for Chipotle to meet its challenges. Those include convincing customers it's safe to eat at its restaurants and catching up to competitors' digital offerings.

Dismantling the company's co-CEO structure should also help. Grocery chain Whole Foods recently did just that, to speed up decision-making in a high-stakes turnaround. And the idea of bringing on a new CEO shouldn't be off the table, considering how long it took Ells to adequately respond to the food crisis.

Chipotle's challenges go beyond management, though, and Ackman seems to have a dated picture of what Chipotle is.

In explaining to investors earlier this month why it took a stake in Chipotle, Pershing said the burrito chain had a "strong, authentic and relevant brand." But that brand -- built on a reputation for offering food that's better for you than other fast food -- has taken a real hit, as some customers still wonder if it's safe to eat there without getting sick.

Pershing said Chipotle had a "differentiated product offering with a fantastic value proposition." But so many fast-casual chains have popped up in Chipotle's wake -- some offering bigger portions for cheaper prices -- that Chipotle no longer stands out. 

Pershing also highlighted "strong unit economics and return on capital," which is restaurant-speak for making lots of money in a profitable way by pushing lots of people through your restaurants in a fast, efficient manner. But as the chart below shows, Chipotle is no longer at the head of the class in that regard. In fact, it's now right below the restaurant-industry average. 

Empty Calories
Chipotle's return on invested capital, a measure of how much bang the burrito maker is getting for its buck, used to be much higher than the industry average. No longer.
Source: Bloomberg

Pershing is correct to argue that Chipotle has an opportunity to grow through delivery, mobile ordering, and loyalty programs -- chains such as Domino's and Panera have benefited from similar investments. But that alone won't replace the sales and traffic that disappeared during the food-safety crisis and still haven't fully returned.

Ackman needs to recognize Chipotle is no longer the cool place to eat and that customers are looking for more than just a return to how things were. While winning a handful of board seats is a good start, truly fixing Chipotle is going to take time. There's nothing fast or casual about this investment. 

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

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Shelly Banjo in New York at

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