Here’s How Chipotle Mexican Grill Plans To Drive Revenues In 2017
The year 2017 has started on a positive note for Chipotle Mexican Grill (NYSE: CMG). The company reported a nearly 15% increase in same store sales for December 2016, indicating that it is finally seeing some positive traction after reeling under the e coli food scandal for more than a year. The prior year December 2015 sales were indeed low following the outbreak of the e coli contaminations in October that year. This magnified the extent of year-on-year percentage growth for December 2016. It still means that the company is seeing signs of improvement. At the recent ICR conference in Orlando Florida, the company laid out its marketing plan for 2017. Chipotle plans to launch both a TV series for kids and a huge marketing campaign. And it plans to move away from promotions in 2017. In April this year, the company will launch its biggest marketing campaign focused on taste and ingredients. As Chipotle builds its recovery path, a focused sales campaign can play an important role in attracting customers back to its locations.
See Our Complete Analysis For Chipotle Mexican Grill
Dessert Menu Item, Online Tool, Digital Ordering To Drive Growth
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Chipotle is trying several new things in 2017 to attract customers. Earlier this month, the company launched an online tool to help customers to count calories and build a customized meal according to their dietary restrictions and preferences. This tool will have a dietary options page which will show customers which ingredients are right for specific individual needs, helping them to build customized meals. The company is looking to attract health conscious customers through this tool by helping them to track their diet goals. Chipotle is also looking to introduce a simple dessert menu item in its restaurants in the spring of this year. However, the company does not consider this menu augmentation to be a strong growth driver. Variety in its menu can entice existing customers to try new items, leading to an increase in the average customer spend at its stores.
This metric, the average customer spend, is a key driver of Chipotle’s valuation. If there is a rapid increase in the average spend per customer visit and it reaches $13.70 by the end of our forecast period (as opposed to our estimate of $ 12.70), there can be a nearly 10% upside to our price estimate.
Chipotle is also looking to promote and boost its digital ordering capabilities in 2017. According to Business Insider Intelligence, mobile ordering of fast food is expected to be a $38 billion market by 2020. Consumers spend more on fast food when they order via online rather than the phone. Research suggests that the average pizza order is 18% greater online than on the phone. Starbucks has demonstrated that mobile ordering can also boost customer loyalty. Chipotle’s efforts to boost digital ordering can have a positive impact on its sales.
As the company works hard to regain customers in the wake of the food virus, Chipotle can benefit from the focused marketing campaign and technology initiatives. While the December sales numbers are positive, they are being compared with a very low base and cannot on their own be taken as a real indication of recovery. The results of the next few quarters will better reveal if Chipotle’s efforts are bearing fruit.
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