Does Chipotle Have A Plan To Woo Customers Back?
During its presentation at the ICR conference on January 13, Chipotle Mexican Grill‘s (NYSE:CMG) Chief Financial Officer, Jack Hartung, said that the company is expecting to win back “most, if not all” of its customers at some point in 2017. [1] The company is launching a massive marketing effort in mid-February to encourage customers to return to its restaurants. While high expenditure on marketing and greater food safety standards would impact margins, gaining customer confidence and revenues is key, at this point. Chipotle believes that the recent E-coli outbreaks will have an impact in the short term, however, it does not change its long-term outlook. We believe efforts to ensure that such outbreaks do not repeat and the ability to regain customer confidence would be the key factors to improve Chipotle’s revenues.
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The Company Is Taking Steps To Ensure Future Outbreaks Are Near Zero
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Steve Ells, Chipotle’s founder and co-chief executive, said at the ICR conference that the company needs to reassure its customers that a similar outbreak cannot happen again and that it is taking steps to reduce the risk of an outbreak occurring again to near-zero. [2] However, as Chipotle sources its 64 different ingredients from over 100 local producers, a tight control over raw materials is difficult. While the company stated that it is working with suppliers and employees to reduce food contamination through sourcing, training, and testing, given the company’s sourcing model, it might be tough to implement and will lead to additional costs.
Marketing Efforts To Attract Customers
Chipotle mentioned that it will step up its advertising efforts in mid-February and reach out directly to its most loyal customers as part of its efforts to regain the customer base. We expect a moderate increase in the company’s average number of visits per restaurant per year from 182,000 in 2016 to around 192,000 by the end of our forecast period.
While marketing efforts might lead to an increase in customer visits, this extra spending will put pressure on the margins of the company. Chipotle’s management admitted that margins will be messy and 2016 will be volatile in terms of earnings. In the long term, however, the company is confident of growth. We expect Chipotle’s restaurant growth to increase at a steady pace to nearly 3,400 restaurants by the end of our forecast period.
While the company is making efforts to ensure that it regains customer confidence and believes that the food poisoning outbreak should not impact its long-term growth, we believe a sustained period of high quality food and service, without any incidents, and increased focus on customer satisfaction, will be key for Chipotle’s revenue growth.
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Notes:- Chipotle : It’s going to be messy,” Business Insider, January 14, 2016 [↩]
- Chipotle ‘confident’ it can stop outbreaks, share rise, Reuters, January 13, 2016 [↩]