Will Chipotle’s Latest Marketing Gimmicks Pay-Off?

Chipotle Mexican Grill has been investing heavily in marketing and promotional activities since it was hit by the E. coli scandal last year. The E. coli or norovirus outbreak at Chipotle restaurants across the country, left hundreds of customers sick, thus, causing the closure of 43 Chipotle restaurants in the states of Washington and Oregon.

The company believes it is critical to re-establish contact and frequency among its guests to refurbish its reputation, and consequently financial performance.

In line with this goal, Chipotle invested 26% more in marketing and promotional activity in the first half of 2016, as compared to same period last year.

In its latest earnings transcript, the company said that it expects the spend on marketing to stay elevated as it tries to recover its sales. To kick off the second half of the year, the Mexican restaurant has undertaken a number of initiatives:

• Launch of a short film, called “A Love Story.” The movie showcases Chipotle’s commitment towards good quality food, as compared to its peers. However, the movie has been criticized for the lack of human touch.
• Free drinks for students. To reach out to the major target audience for fast casual dining, i.e. millennials, the company started a limited period promotional offer for students going back to college. The promotional offer entails a free soft drink with any in-store entrée purchase. The transaction will be valid for “Chiptopia,” the restaurant’s very popular loyalty program, as long as the minimum bill is of $6.
• Free kid’s meal. Another such attempt at getting customers back to its stores is the free kid’s meal scheme, which allows customers to receive a free kid’s meal with the purchase of an entrée on every Sunday of September. This is being advertised by the company as a way to bring families back together and will count towards its loyalty program, Chiptopia.

However, these promotional activities may not work as they do not directly impact revenues. Some of the factors that may hamper Chipotle’s efforts of sales recovery are:

• An industry-wide slowdown due to a lesser number of people eating out. This is being speculated to happen due to grocery prices lagging behind menu prices, discouraging people from eating out.
• More health awareness causing people to lean towards organic and nutritional food.
• People are more careful about spending their income now, even as the number of restaurants keeps growing. It is quite likely that supply in the mature markets of the U.S. and Europe is fast outpacing the demand.
• Labor woes at Chipotle: 10,000 current and former workers are suing Chipotle for alleged wage theft.

Have more questions about Chipotle Mexican Grill (NYSE: CMG)? See the links below:

• Down, But Not Out: Chipotle Returns To Profitability In Q2’16, Despite Weakness In Top Line
• Chipotle Mexican Grill Q2 FY’16 Earnings Preview: Recovery In Top-line Likely To Be Weak
• Chipotle Mexican Grill Struggles in Q1 FY’16 As Last Year’s E.coli Controversy Impacts Comparable Sales
• Chipotle Mexican Grill FY 2015 Earnings Review: E.Coli Scandal Hinders Top-line Growth
• What’s Chipotle Mexican Grill’s Fundamental Value Based On Expected 2016 Results?
• What Is Chipotle Mexican Grill’s Revenue and EBITDA Bridge?
• How Has Chipotle Mexican Grill’s Operating Metrics Changed Over 2011-2015?
• Where Will Chipotle Mexican Grill’s Revenue and EBITDA Growth Come From Over The Next Three Years?
• Chipotle Mexican Grill Q1 FY’16 Earnings Preview: E.coli Scandal Might Still Impact Top-line Growth

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