Run For The Border

Chipotle Was Smart to Turn to Taco Bell for a Savior

New CEO Brian Niccol has a tough job, but the right skills to help the burrito chain.
Photographer: Patrick T. Fallon/Bloomberg via Getty Images
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Brian Niccol had one of the restaurant industry's plum jobs. Since 2015, he had been CEO of Taco Bell, the Yum! Brands Inc.-owned fast-food giant, where he helped engineer a run of mostly steady sales growth.

And he just gave it up to try his hand at cleaning up a big mess.

Chipotle Mexican Grill Inc. has named Niccol its next CEO, the burrito chain announced Tuesday. He will take over in March from founder Steve Ells, who had earlier agreed to vacate the role when it became clear his turnaround efforts weren't cutting it.

It’s no secret Niccol will inherit an extraordinarily wide range of problems. This chain’s reputation with diners has been battered by everything from norovirus to grainy queso to slow service. Its investors are jittery, running for the exits at even the vaguest reports that someone might have been sickened after eating at it one of its restaurants.    

Overcooked

After soaring on the back of strong sales in 2014 and early 2015, Chipotle shares tumbled in the wake of its food contamination scare and haven't recovered

Source: Bloomberg

And yet, believe it or not, I get why Niccol couldn’t resist the job: If he plays it right, it’s a huge opportunity.

Regular Gadfly readers know I am doubtful Chipotle can ever return to the sizzling growth it enjoyed back in 2014. A crush of formidable competitors have joined the fast-casual fray. And Chipotle has opened so many restaurants it's probably cannibalizing its own sales in certain locations

Fanning Out

Between the end of 2010 and the end of 2017, Chipotle had more than doubled its number of locations

Source: Bloomberg

That said, there is a lot of low-hanging fruit to be plucked at this point to get Chipotle in meaningfully better shape, and Niccol has the right résumé to get it done.

Much of Chipotle’s problems right now are operational. It has been strained both by adding locations quickly and by reworking its food-preparation procedures after the contamination issues. And it appears the company just hasn’t quite figured out how to adapt to those changes while ensuring its food consistently tastes good.

A leader who has run a much larger global taco empire will have the right skill set to do this. Taco Bell had 6,849 restaurants and $10.1 billion in system sales in the latest fiscal year. Chipotle, by comparison, had 2,408 locations and $4.5 billion in sales. 

Meanwhile, looking at the key strategic moves Niccol was involved in at Taco Bell, it's easy to imagine what he could do at Chipotle in a best-case scenario. He was a senior executive when Taco Bell launched the Doritos Locos taco, a smash-hit menu item that sold 325 million units in its first year alone. Maybe he can steer Chipotle to new offerings that have more impact than the recently abandoned chorizo or the tepidly received queso.

Niccol also played a role in getting Taco Bell into the breakfast business. Competing for morning dining dollars might help Chipotle, and Niccol has the experience to figure that out.

And he was on the front lines of Taco Bell's rollout of mobile ordering, technology that should be central to Chipotle's growth plans.

In a way, it’s a strange twist that Chipotle had to go knocking on Taco Bell’s door to find its savior. Not long ago, some industry watchers howled at Taco Bell's more-upscale Cantina menu, a move many interpreted as an acknowledgment Chipotle was outgunning its down-market rival. But I applaud Chipotle’s board for realizing the industry tides have turned and that a quick-service restaurant executive might have exactly the stuff they need.

It remains to be seen exactly what plans Niccol will put in place. There's a risk he pushes Chipotle so hard to embrace Taco Bell tactics -- such as combo meals or limited-time offers -- that Chipotle starts to have a vibe that's more like a fast-food joint than an emporium of simple, clean ingredients.

But for now, Niccol's appointment offers reason to hope Chipotle can become a healthier business.

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

    To contact the author of this story:
    Sarah Halzack in Washington at shalzack@bloomberg.net

    To contact the editor responsible for this story:
    Mark Gongloff at mgongloff1@bloomberg.net

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