Why Chipotle’s New Rewards Program Is A Long Term Investment?
Chipotle Mexican Grill’s (NYSE: CMG) has been struggling to grow revenues after the viral outbreaks sickened its patrons and broadsided its business. The company recently launched “Chiptopia Summer Rewards”, a three month long promotion beginning July 1st. Under this program, the company will reward customers for making multiple paid visits to its restaurants. A visit will qualify for a reward if the minimum purchase before tax is $6.00 and the fourth, eighth and eleventh visit in each month will earn a reward in the form of a free entrée. While free meals will impact the profitability of the company, it is critical for Chipotle to win back its loyal customers. This reward program can prove to be an effective way of increasing customer visits to its stores. As its restaurants witness an increase in traffic, it should enable to company to regain customer trust and attract more customers in the long term.
See Our Complete Analysis For Chipotle Mexican Grill
More Customer Visits Can Enable Recovery
- How Did Chipotle Stock Gain 20% This Year Despite Inflationary Headwinds?
- Up 17% This Year, Will Higher Pricing Boost Chipotle’s Stock Post Q2 Earnings?
- Where Is Chipotle Stock Headed Post Stock Split?
- Chipotle Stock Is Up 39% This Year. What’s Happening With The Company?
- Rising 25% Year To Date, Will Q1 Results Drive Chipotle Stock Higher?
- Up 11% Already This Year, Does Chipotle Stock Have More Room To Run After Q4 Results?
While giving away free meals after every three paid meals will reduce the average spending per visit at Chipotle’s restaurants, the company is focused on increasing customer visits to its restaurants to regain customer confidence lost due to the viral outbreak. As per our estimates, average purchase per visit at Chipotle’s restaurants will increase moderately from around $11.40 in 2016 to $12.30 at the end of our forecast period.
We expect the average number of visits at Chipotle’s restaurants to increase steadily from 175,000 in 2016 to around 190,000 by the end of our forecast period.
While the new short term rewards program will put a pressure on Chipotle margins, an increase in the number of visits of customers will give the company an opportunity to showcase its renewed focus on food safety and the measures the company has taken to avoid another outbreak in future. Chipotle has been working on several measures to this end, such as improving sourcing and storage of raw materials, better training employees and hiring veterans for its food safety and quality reviews. Still, these measures will only bear fruit when customer confidence is regained. By encouraging customers to visit its restaurants more often through its summer rewards program, Chipotle can work on rebuilding customer trust. If its restaurants are brimming with customers over the summer, Chipotle should be able to attract more customers who were earlier shying away from its stores looking at the scanty traffic.
Chipotle is working on a combination of marketing efforts and food safety initiatives to recover from this scandal. While it has taken measures to ensure high food quality, marketing efforts such as the current summer rewards program will be critical to attract customers. While these efforts will increase costs and put pressure on margins in the short term, its benefits will be visible in the long term.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap