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Chipotle drops a bombshell

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About half of Chipotle’s restaurants deserve no more than a “C” grade for the customer experience they’re providing, a result of operational complications and staff turnover tracing back to last year’s food safety crises, co-CEO Steve Ells told Wall Street today.

The brand’s founder also revealed he has doubts about the company’s ability to hit the turnaround milestones that were set earlier for investors.

Attendees of the Barclays investment conference said they also learned from Chipotle executives that the company is about to announce a reshuffling of its board, which has been blasted by investors for being too insular, stagnant and lacking in diversity. One financial analyst, Howard Penney of Hedgeye Risk, tweeted that he had heard the changes could include the resignation of co-CEO Monty Moran, but Chipotle refuted the assertion.

Ells was quoted by attendees of the investment conference, held in New York by Barclay Bank, as saying Chipotle “took our eye off the ball on the customer service side” following E. coli and norovirus contaminations traced to the brand.

Ells explained that procedures put in place to upgrade the safety of Chipotle’s food had the downside of complicating operations, which in turn accelerated staff turnover, attendees said. He said that half the chain's domestic stores deserved a "C", "D" or "F" on customer experience. 

“This has caused unwanted adverse issues, such as higher employee turnover and a lower quality of the restaurant experience,” Mark Kalinowski, the restaurant analyst for Nomura/Instinet, told customers after hearing Ells.

Kalinowski downgraded his forecast for Chipotle’s fourth-quarter same-store sales decline to 4%.

Other attendees recounted that Chipotle is planning to raise menu prices early next year to counter rising labor costs.

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