Financing

Has Chipotle turned a corner?

Strong sales on the day word spreads of another potential outbreak show consumers' fears of the chain might be easing, says RB’s The Bottom Line
Photograph courtesy of Chipotle

The Bottom Line

Chipotle Mexican Grill customers are apparently willing to risk getting sick to get free guac.

That’s not entirely true. But this week might well have been the first real indication that Chipotle is past its unsafe reputation, one that it has had since a series of food safety incidents plunged the company into a three-year comeback attempt.

Consider the odd juxtaposition this week, when it was revealed that more than 500 people said they got sick after eating at a Chipotle in Powell, Ohio.

(That number is now nearly 600, though early tests on customers for E. coli, salmonella, norovirus and shigella have thus far come back negative, according to local health officials.)

By contrast, 135 people said they got sick after the norovirus outbreak at a location in Virginia last year.

Meanwhile, at the same time, Chipotle said that it broke digital sales records on July 31 and had its best summer sales day ever.

In other words, as news was spreading about the outbreak, people were rushing to their local Chipotle to get the free guacamole they ordered on the company’s website or its mobile app.

We can draw a few conclusions from this phenomenon.

First, that its marketing is proving to be smart. The company took advantage of National Avocado Day to give customers something they’ve long demanded—free guacamole—while using the offer to boost digital sales.

The promotion clearly was enough to offset the week’s bad publicity.

But even before that promotion there were some indications that reaction to this particular outbreak was different than the one last year in Virginia that sent the chain’s sales reeling again and probably led to the departure of CEO Steve Ells.

Sara Senatore, analyst with Bernstein Research, said in a note Wednesday that an analysis of social media found that the reaction “looks less pronounced” than the norovirus incident last year.

Social media posts related to this incident were 25% less than what was seen a year ago.

Peter Saleh, analyst with BTIG, said the free guacamole promotion “should help ease the sting of recent food safety headlines.”

“We believe whatever sales impact this incident generates should prove to be short term,” he wrote, noting that management previously indicated that half of lost sales typically recover in a few weeks.

The most likely explanation is that consumers are sort of used to this by now. This incident is isolated to one location.

What’s more, the company has likely lost the consumers that are concerned about the chain’s food safety issues since 2015. What remains is a more loyal customer base, apparently unfazed by the incident in Ohio.

Or at least not fazed enough to avoid free guacamole.

None of this is to say the chain has recovered. It hasn’t, as sales and profitability remain far below what it was before 2015 and to get those customers it does have to go longer without one of these problems.

Yet it appears that Chipotle food safety incidents don’t quite generate the social media fears they did just a year ago.

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