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With its new hire, Chipotle shows it's just another QSR

The Bottom Line: The burrito chain has been trending toward normalization for some time now, and that's a good thing.

Does the appointment of Brian Niccol as Chipotle CEO spell good things for the brand’s direction? RB Executive Editor Jonathan Maze and Editor-at-Large Peter Romeo offer opposing points of view. For the alternate take, see Reality Check.

 

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It’s official: Chipotle is a regular fast-food restaurant.

The fast-casual chain, which spent its 25-year history proclaiming itself as a new type of fast food, more or less confirmed its shift toward normalization with the hiring of Brian Niccol, the former CEO of Taco Bell, to be its new chief executive.

And this is a good thing.

Chipotle’s rise from the early 2000s through 2015 was enormous. The Denver-based chain spawned numerous competitors, fueling the explosion of the fast-casual restaurant sector. Its success drove investment in that business and provided a new gold standard for industry profitability.

It’s difficult to overstate just how successful Chipotle circa 2014 really was. The chain’s unit volumes were $2.4 million, close to that of its onetime mentor McDonald’s. Those volumes gave the chain otherworldly restaurant-level margins of more than 26%. That enabled the chain to pay off a new unit, systemwide, in just 18 months. This is the so-called Chipotle Model.

It did this with that new-fast-food mantra, a model that promised its customers food raised more ethically and sustainably—giving customers good feelings about eating burritos that were the caloric equivalent of a Big Mac, fries and a Coke.

That pushed many fast-food chains to mimic the sustainable, natural sourcing strategies, leading companies as diverse as Papa John’s and Panera Bread to go all-natural while even McDonald’s tried improving its sourcing methods.

The chain’s downfall has, perhaps not surprisingly, been just as stark. Its unit volumes plunged 23% in 2016 following a series of food safety incidents that wrecked Chipotle’s standing among consumers.

Those unit volumes have been slow to return in 2017. Its restaurant-level margins last year were a far more pedestrian 17%. Its unit volumes last year were also more pedestrian, at just $1.9 million—much more closely aligned with a successful fast-casual or quick-service chain.

Indeed, as the company’s recovery last year slowed down, the chain adopted numerous strategies that sounded an awful lot like a typical fast-food chain. It began focusing more on operations and service. It created a newfangled kitchen to test new items and introduced queso last fall in a bid to generate incremental sales.

Its executives complain about weather hurting traffic. The company began advertising on television, figuring the old-fashioned medium would provide a more instant lift to its same-store sales.

Now it’s hired a CEO from a restaurant chain that is quite traditional in Taco Bell.

Niccol will be good for Chipotle. He will bring knowledge from a brand whose marketing ability is virtually unmatched in the restaurant space.

Perhaps no single chain is as good at determining who its customer is, and targeting that customer relentlessly, than Taco Bell.

Niccol will assuredly determine Chipotle’s customer base and then figure out ways to get them to come in more often. That could mean more products and a stronger innovation game that will give customers something to focus on. He will also likely help the chain improve its use of customer-facing technology, something Taco Bell is notably good at.

He will not abandon the chain’s Chipotle model. It would be stupid for a CEO to come into a restaurant chain and dismiss everything it has stood for. Hopefully, Niccol will enhance that strategy, while injecting some much-needed restaurant industry know-how into the business.

But when Chipotle’s problems first emerged, the company felt it could Chipotle its way out of the mess. The company relied on the same strategies it had used over the years to get back into customers’ good graces. It waited to advertise on television. It created a temporary, rather than permanent, loyalty program. It didn’t do nearly enough public relations to improve its image.

The chain needs to do things much in the same way other restaurant companies do things, because those strategies work. The hiring of Brian Niccol proves it is going in exactly this direction.

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