New Year, New Chipotle?
The year 2016 was another miss for Chipotle. The company continued to find conditions challenging, and failed to see any meaningful improvement in its key metrics. The third quarter results, with comparable sales down -22% y-o-y and revenues down -15% y-o-y, failed to make a mark. Furthermore, the stock price was on a constant downward trajectory. Can we expect the new year to bring new tidings for the scandal hit Chipotle?
The downward trajectory of Chipotle’s stock price
(Jan’16-Dec’16)
In this note we talk about some of the recent managerial changes at Chipotle and what they could potentially mean for the company.
Addition Of Four New Members To The Board
A few weeks back, Chipotle announced the addition of four new board members. The members, Paul Cappuccio, (Time Warner), Robin Hickenlooper (Liberty Global), Ali Namvar (Pershing Square), and Matthew Paull (Pershing Square, ex-McDonald’s) will serve through the 2017 annual meeting. Investors hope a board shakeup will help spark a turnaround for the company, which has been unable to get over the E.coli scandal.
The old board was criticized as it lacked experience in the restaurant industry. However, with Paull and Hickenlooper entering the board, this complaint should be dispelled.
Return Of Steve Ells As The Sole CEO
Another interesting development is the announcement regarding the return of Steve Ells as the sole CEO of the company, while he continues to head the Chipotle board. As he takes up the reigns of the company, Ells hopes to revisit the old operating model of Chipotle. He wants to simplify operations, while providing customers with great experiences by way of tying employee incentives to the level of guest experiences.
The Mexican restaurant has now started paying its employees above the federal minimum wage and provides benefits including paid vacation time, paid sick leave, and tuition reimbursement to all employees. This is likely to quell the unrest seen among its employees and allegations made against it regarding wage theft.
Ells further commented on re-envisioning its Restauranteur program, which has lately become increasingly complex. The Restauranteur program recognizes the company’s elite restaurant managers and provides a pipeline for its future leaders. The program was marked as a cornerstone of Chipotle’s field operations. We can expect, under Ells’ leadership, to see the Chipotle model becoming less complex, even as it tries to win back support through innovation and “making better food accessible to more people.”
Improving The Guest Experience
As Ells’ mentioned in the press release, his primary focus upon taking leadership would be to improve the guest experience. In order to get people visiting the Chipotle restaurants again, at the same frequency as before, it is imperative that the company is able to instill trust among its customers while providing them with an unforgettable eating experience, unbridled by long queues. To this end, the company has employed a large workforce, to the extent of being overstaffed. The Mexican restaurant wants to ensure a great customer experience at all costs.
Conclusion
Although a number of managerial changes have occurred at Chipotle this year, it is quite unlikely that the company will see a sudden turnaround next year. It will have to incur considerable amounts on marketing and promotions, along side managing food safety. In addition to this, the large workforce to provide a top notch guest experience is likely to result in higher wages. All of this is likely to burden the Mexican restaurant, and consequently, we expect the company’s margins to stay flat in the coming year.
Have more questions about Chipotle Mexican Grill (NYSE: CMG)? See the links below:
- Will Chipotle’s Latest Marketing Gimmicks Pay-Off?
- What Impact Can The Continued Fall In Spend Per Visit Have On Chipotle’s Stock Price In The Next Year?
- How Has Negative PR Affected Chipotle’s Operating Efficiency?
- What Can Produce Over 10% Upside To Chipotle’s Stock In The Next Year?
- How Is Chipotle Dealing With The Aftermath Of The E.coli Outbreak?
- 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
- 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?
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