How Chipotle Made a Stunning Turnaround
Ask almost anyone and they will say they remember the E.coli outbreak that hit Chipotle in 2015 and 2016. The outbreak affected 60 people in 14 states in the United States, more than 20 of which were hospitalized. If two outbreaks were not enough Chipotle also had a norovirus outbreak that sickened 120 students at Boston College in 2017.
This was a terrible situation with not only human impacts but financial ones as well. In the third quarter of 2016, Chipotle’s same store sales were down 21.9%. It is also estimated that Chipotle lost nearly a billion dollars due to the E.coli outbreak. Then Chipotle had another food borne illness outbreak in 2018 due to food left at unsafe temperatures, infecting 700 people.
Needless to say, Chipotle faced extremely trying times for several years in a row. Customers were so spooked by the food safety issues that a survey conducted in 2018 found that 32% of consumers said that “nothing” would make them want to visit the chain more frequently.
As Chipotle expanded quickly it struggled to maintain quality control over its fresh items which led to many food borne illnesses. Speaking about this, a former Chipotle supply chain executive said: “we would go through millions of pounds of cilantro! That’s such a dangerous item—so many nooks and crannies where E.coli can hide.” “As much fresh produce as they deal with…in retrospect, I can’t believe somebody didn’t raise a red flag.”
Speaking about Chipotle’s troubles, Aaron Allen a restaurant consultant said: “the setback around the food safety issues that they had certainly was one of the most tremendous losses of value ever seen in food service.” Chipotle’s stock went into a downward spiral falling from $750 on Oct. 15, 2015 to $251 on Feb. 2018 a loss in value of 67%.
After all of these food safety issues many thought Chipotle was done but it made a comeback. With food safety a priority, workers can no longer enter a Chipotle kitchen without undergoing a health and wellness check. “We have a very different food-safety culture than we did two years ago.” “We’ve got cleaner that actually kills norovirus when you clean the tables in the dining room” said Chipotle’s CEO, Brian Niccol.
Niccol, was hired away from Taco Bell where he was CEO to become the CEO of Chipotle in February of 2018. It turns out food safety wasn’t the only area holding Chipotle back. Niccol staged an aggressive comeback targeting several areas the fast casual restaurant chain needed to focus on to not only survive but thrive in the competitive restaurant industry.
1. Menu items. For a long time Chipotle stuck to a simple tried and true menu with little variation. But in an attempt to increase sales Chipotle began testing new menu items. New menu items aren’t just dropped on to a Chipotle menu they go through a comprehensive stage gate process where the menu item is tested in a small market first. That market might be just one store. Based on the results of the test market the new item is put into a larger market, lets say seven - eight stores and then if proves to be successful it is launched nationally.
The now popular Queso Blanco is one of the menu items that went through this process after it was initially launched prior to Niccol’s arrival with poor results. Other new menu items Chipotle has introduced since the turnaround include diet friendly Lifestyle Bowls and quesadillas. Chipotle has also launched new items like nachos, tostadas and frozen drinks in recent years to get customers to make trips to Chipotle in between meals.
2. Marketing. Historically Chipotle did very little marketing and instead relied primarily on its stores as a marketing vehicle. But Niccol, using his experience at Taco Bell where he was chief marketing officer before becoming CEO, decided to do things differently. Chipotle, under Niccol’s watch, took out ads during television show season finales, NBA games and it sponsored Fortnite video gamers. “Chipotle didn’t have to do advertising for so long because they’d build a restaurant and people would come,” says Chris Brandt, Chipotle’s chief marketing officer. “But the level of competition has changed. The world has changed.”
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3. Digital. Chipotle also made a big push into digital in an effort to turn around the company. In 2018 8.8% of Chipotle’s sales came from digital. But Niccol believed more customers would want to interact with the brand this way in the future. To that end Chipotle enabled in app delivery orders using DoorDash and Postmates as partners. Chipotle even provided free delivery promotions to entice customers to order using its app.
Similar to Starbucks which has a successful rewards program, Chipotle launched a loyalty program linked to its app in 2019. After spending $125 at Chipotle customers receive a free meal and they also receive free guacamole and chips after purchasing their first meal as a Chipotle Rewards member. Chipotle often offers a chance to win cash prizes for customers who sign up for the program. “We’ve built the systems around giving people, whether it’s a customer or delivery driver, a guaranteed pickup time before we layered on a rewards program that should drive a lot of traffic,” said Curt Garner, Chipotle’s chief technology officer. “We’re seeing people that are choosing Chipotle for the first time because we now have a very robust digital ordering experience.”
By analyzing the behaviour of loyalty program members on the app, Chipotle receives the data it needs to send customers more customized and effective marketing communications. “When we get the pilot going on our loyalty program, I think that’s going to give us another level of insight in understanding on exactly how all these transactions are interacting with each other,” said Niccol speaking about theinitial pilot of the rewards program. “That’s a new skill we’re going to be building for the organization going forward.”
Chipotle Rewards is a hit, reaching five million members within four months of launch. The program now has 20 million members.
Chipotle also added digital pickup shelves in its restaurants before many others decided to do so. While this seems like an obvious move today Chipotle did this before the pandemic made online pickup a necessity. “We want our guests to enjoy Chipotle whatever way is most convenient for them. Whether it be through ordering and paying digitally ahead of time through delivery or via a group ordering option,” said Niccol. In 2020 Chipotle’s digital sales as a percentage of total sales were 46.2% up 174.1% over 2019.
4. Culture. Like many new CEO’s Niccol decided to shake up the management team after he arrived. He brought in several new executives including a new chief marketing officer who previously worked with him at Taco Bell. "That first year, it was a lot of hiring. Myself, personally, I was interviewing people. I wanted to make sure they were the right culture fit," said Niccol. "Corporations are only as good as the people they have and the purpose that those people believe in."
Niccol was so fixated on improving Chipotle’s culture he moved the company’s headquarters from Denver to Newport Beach, California which he believed had a better market for talent.
By 2020 Chipotle’s sales were up 7.1% to reach $6 billion and its stock has soared to over $1,400. All in all the company has defied the odds and returned to growth.