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How will the California move impact Chipotle?

Companies move headquarters all the time, but it can be disruptive, says RB’s The Bottom Line.
Photograph courtesy of Chipotle Mexican Grill

The Bottom Line

In the fall of 2015, what is now Dine Brands Global decided to move its Applebee’s headquarters from its longtime home in Kansas City, Mo., to California. The move led to a major change in the brand’s management.

The next year, same-store sales deteriorated badly. And by the fourth quarter of 2016, its same-store sales had fallen 7.2%, and by the end of the year, Dine’s CEO, Julia Stewart, was out.

The move comes to mind as another brand plans its own move out west: Chipotle Mexican Grill.

Chipotle’s planned move away from its longtime Denver headquarters to Newport Beach, Calif., is easily the riskiest that new CEO Brian Niccol is undertaking as he overhauls the brand.

The company is moving closer to Niccol’s home, as well as to Taco Bell headquarters, where Niccol once worked. But it is laying off 400 people in the process, some of whom are clearly upset, at least judging by the fake Brian Niccol Twitter account one of them appears to have created.

Some industry observers we’ve spoken with have wondered why Chipotle would make such a move at a time when employees are so hard to find. They’ve also suggested the company wouldn’t be able to easily poach Taco Bell employees.

Investors, however, could not care less. Chipotle’s stock is up 76% this year. It’s up 19% since the company announced its headquarters move—even though the chain during that time had another food safety incident, one that sickened more than 600 people.

Companies move headquarters all the time, and there are plenty of examples of such moves in the restaurant business. They are almost always disruptive and lead to challenges as the brand or company sorts itself out in its new location.

At the same time, however, such problems prove temporary and companies typically recover.

Applebee’s is a perfect example.

When Dine Brands moved Applebee’s headquarters, it lost the brand president, its head of marketing and its head of technology. Same-store sales deteriorated badly, and though that came amid a disastrous shift to upscale the brand with hand-cut steaks and wood-fired grills, it’s hard not to connect the two.

Indeed, RMH, the big Applebee’s franchisee that has filed for bankruptcy protection and is in an increasingly difficult legal dispute with the franchisor, blames that move at least in part for the brand’s struggles.

But Applebee’s has since recovered as its new president and marketing team have figured out what works. Second quarter same-store sales were the highest for the brand in a decade.

And Applebee’s at least had some presence in California already, as the parent company and sister brand IHOP are based there.

In 2016, Jamba Juice decided to move from California to Texas in a bid to get closer to where it wants to grow.

A lot of Jamba’s headquarters staff did not make the move, and the company missed several deadlines to make earnings filings. Those missed deadlines put Jamba’s status on the Nasdaq stock exchange in peril; losing its Nasdaq listing would have been devastating for the company and its stock price.

“The company underwent significant changes in business model, leadership, key personnel and relocation of corporate office,” Jamba said in its filings last year. “Those changes resulted in a significant increase in non-routine transactions and impacted certain routine processes needed to effectively accumulate and present consolidated financial results.”

But after some early sales challenges, Jamba has regained its footing. It has filed its reports. Sales have improved. And the company is now being sold to Focus Brands.

In late 2008, Wendy’s moved its headquarters to Atlanta from Dublin, Ohio, to be near sister company Arby’s.

Same-store sales were down in both 2009 and 2010. Arby’s struggled even more during that period, however, and by 2011 Arby’s was sold to Roark and Wendy’s moved back home. Both chains have been among the most consistent performers in the restaurant business ever since.

None of this means that Chipotle will definitely struggle as it moves to California. The company is undergoing a lot of changes, many of which are being received positively—it sold more burritos and bowls over the weekend, for instance, than at any time in company history thanks to a buy-one, get-one offer. That came after a free guacamole offer generated its strongest summer sales day in history.

But the move is definitely something to watch out for. Having to replace an entire headquarter's worth of staff can cause problems for any brand.

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