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Chipotle revises its recovery plan

With a turnaround proving tougher than expected, Chipotle is tweaking its comeback plan to put more emphasis on technology, menu changes and advertising.

It also revealed a new, less-expensive store design, and pledged to cut costs by $100 million a year.

Management revealed the adjustments yesterday after voicing disappointment with third-quarter financial results. The burrito chain posted a 21.9% year-over-year decline in same-store sales on a 15.2% drop in traffic.

“We're not satisfied and we'll continue to work extremely hard to make the necessary adjustments,” co-CEO and founder Steve Ells told investors.

He and other officials detailed a plan that struck some financial analysts as the standard fast-food cookbook.

“One of the hallmarks of the Chipotle business is how simple you've kept the operations and how focused you've been on delivering high quality,” said David Tarantino, the restaurant analyst for Robert W. Baird & Co. “Now we're hearing that you're going to shift the focus a bit toward menu innovation and perhaps traditional marketing tactics or strategies.”

“I wouldn't worry that we're going to slip into the traditional fast-food model of introducing multiple new menu items wrapped with advertising multiple times a year,” responded Mark Crumpacker, Chipotle’s chief marketing officer.

Rather, he and other executives said, the chain is adjusting some of its features to accommodate current market conditions. They noted these adjustments in particular:

Revamping kitchens

Virtually every Chipotle restaurant currently has a second prep line where catering and other sent-in orders are prepared. The chain is revamping what it calls “the second make line” to supercharge the throughput while cutting labor costs. The key, said Ells, is a new system that receives orders digitally and shows the orders on a screen, so staffers on the line aren’t distracted by someone handing over a ticket. He forecast that the new setup would enable Chipotle to raise its digital sales above the current 6% of total store intake.

The system is in test, but Ells said a rollout is already anticipated.

A new ‘mobile-enabled’ ordering website 

In a marked departure from what most restaurant chains are doing, Chipotle plans to update its digital ordering processes via a new website rather than the next generation of an app. The technology, set to debut next month, enables customers to place an order from any smartphone and pay for it without having to download an app. Ells said the system is more efficient than most app-based processes, but declined to reveal details.

In-store tablet ordering 

That capability will apparently extend to tablets that Chipotle intends to install in stores as a way for patrons to cut the line. Orders input via the tablets will be relayed to the second production line, streamlining service without taxing the main prep process, the executives noted.

Desserts and more

Two indulgent items are currently being tested as the chain’s first dessert items, revealed Ells, without identifying what they are. The chain will soon choose which one to feature and introduce it systemwide, he said.

Other menu additions will likely follow, added Ells. But he specified that breakfast is not likely to be one of the short-term changes. Chipotle already offers breakfast in at least one of its airport locations.

National TV advertising

One of Chipotle’s signatures has been its reliance on unconventional marketing methods, from showing movies that promote sustainable agricultural processes to free smartphone video games. But it’s trying conventional TV advertising as a way of drawing new customers, Crumpacker revealed. Already in test is a 30-second spot promoting chorizo, Chipotle’s newest protein choice.

With various forms of marketing support, chorizo already accounts for 7% of entree sales, he noted.

“If the test reveals that television advertising delivers the results we want, we may begin to integrate national television buys into our advertising campaigns,” Crumpacker said.

New store design

After a year of brainstorming, Chipotle is starting to build a new generation of restaurants, said Crumpacker. The new design offers “improvements in lighting, acoustics, seating, customer flow and the presentation of our kitchen,” while cutting costs by about $40,000, to an average of $760,000 per store, he said.

About 50 stores will open in 2017 with the new design, Crumpacker added.

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