Opening Remarks

Chipotle's New CEO Is Saying the Right Things

Earnings-call comments give encouraging hints at a plan to fix the burrito chain.
Corrected
Photographer: Patrick T. Fallon/Bloomberg via Getty Images
CHIPOTLE MEXICAN GRILL INC
-6.63
At Closing, May 18th
431.95 USD

In the weeks since Brian Niccol was named CEO of Chipotle Mexican Grill Inc., investors have been hungry for information about how he intends to fix the struggling burrito chain.

During a Wednesday evening conference call about the restaurant's relatively upbeat quarterly earnings, Niccol said he intends to lay out his plans in detail some time before the next earnings call. But he dropped some hints about what we can expect. And investors are right to be optimistic about what they heard.

If there were a single line worth remembering, it was this: "I believe the brand has been invisible." Niccol echoed that sentiment several times throughout the call, essentially saying Chipotle has a serious marketing problem.

He may be right. Though it's up from the nadir it hit after Chipotle's food-safety debacle, consumers' impression of the chain hasn't meaningfully improved in the past year or so, according to YouGov survey data.

Stuck

In consumer surveys, Chipotle's "impression score" -- a measure of how positively or negatively consumers perceive a brand -- hasn't changed much in recent months and remains lower than before its food safety scare

Source: YouGov BrandIndex

Diners' willingness to buy food at Chipotle also remains stuck well below where it was in 2015, prior to the scandal.

No Thanks

Chipotle's purchase consideration has not returned to levels it had reached before its food contamination scare

Source: YouGov BrandIndex

Each data point is a 12-week moving average. Survey sample is weighted so as to be nationally representative of U.S. population.

Niccol seems to believe that, to boost sales growth, Chipotle simply needs to remind diners it exists and why it's different from its fast-growing slate of competitors.

After Wednesday's remarks, I think we can safely say one of Niccol's earliest focuses is freshening up Chipotle's advertising and rethinking how to spend its marketing dollars. In fact, it looks like that work has already begun. Watching a TV show on a streaming service this week, I was surprised to see an ad for Chipotle; also surprising was its cheeky, playful tone.

Niccol's comments were encouraging in other ways, too. He gave the impression that, generally, he is going to tackle the most straightforward problems first. For example, when asked about expanding into new dayparts, he suggested the chain would look first at how it could do this with the menu it already has, rather than diving right away into the complex business of building a breakfast menu. You could imagine, for example, Chipotle locations in busy areas staying open past their typical 10:00 p.m. closing time and doing a significant late-night business without much change to the menu or operations.

Lastly, when Niccol talked about what Chipotle needed to do to reach more customers, it was an assuring sign that his framework was not, "We need to rush to open as many restaurants as possible."

Fanning Out

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

Source: Bloomberg

Instead, he kept talking about improving customer "access" -- making it more convenient for people to eat Chipotle with offerings such as delivery, catering, online order pickup, and even drive-thru windows.

This is the right way for any executive to think about how to gird a dining chain for the future -- but especially a chain such as Chipotle. Digital orders accounted for 8.8 percent of its sales in the first quarter, and have the potential to account for much more.

Couch Potatoes

Online food delivery is expected to grow robustly over the next several years

Source: Morgan Stanley Research

We still have much to learn about Niccol's bid to get Chipotle out of its rut, so it's impossible to say whether or not it will succeed. But the early signs are promising.

Correction: An earlier version of this story misstated the day of Chipotle's earnings call.

(Corrects day of Chipotle's earnings call)
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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