Chipotle’s fall to earth after five quarters of soaring comp sales jarred loose a number of revelations this week from the industry darling. Here are four that should prompt more gasps than a second-quarter same-store sales increase of “merely” 4.3 percent. Added as a bonus is a little-known reason for the success of another perennial high-flyer in the business, Chick-fil-A.
1. Chipotle may be a shrill critic of restaurant food that looks and tastes as if it came from a science lab instead of a farm, but it’s not above hiring clipboard-toting folks in white coats to do some product development. Management revealed to investors that the chain is engineering a new tortilla through a partnership with Washington State University’s Bread Lab, a facility devoted to increasing the world’s scientific knowledge of grains and their high-production qualities.
It’s not as if a guy named Igor is helping Dr. Frankenstein with bubbling beakers and smoke-gushing flasks. Chipotle co-CEO Steve Ells said the next generation of his chain’s signature ingredient will be made with just a few raw materials and absolutely no artificial components, a boast the chain can’t make about its current tortillas.
The challenge, Ells said, is to do it at a scale that can supply an 1,878-unit chain.
2. The king of local sourcing is now importing its carnitas from the United Kingdom. The foreign-sourced pork will fill the shortfall in supply that followed Chipotle’s decision to drop a vendor who fell out of compliance with the chain’s animal-husbandry standards. Chipotle stopped offering carnitas in about a third of its stores because of the disruption, which cut into comp sales.
Ells acknowledged that the pigs supplied from Great Britain may be treated with antibiotics, but only to counter disease and not as a standard way of promoting the animal’s growth.
“While it has always been our preference to source meats domestically, the quantity of pork that meets our standards is simply not available right now from domestic suppliers as the vast majority of pork raised in the United States, more than 95 percent based on our estimates, is not raised to our standards,” Ells told investors.
3. A loyalty program wouldn’t help Chipotle, according to Chief Creative and Development Officer Mark Crumpacker. “We've studied this in-depth, and we don't believe the general supposition that loyalty will make less frequent customers more frequent,” he told a financial analyst. Research shows that a program will merely reward current customers for their current purchases instead of fostering even one additional visit per program participant.
Crumpacker acknowledged that the information gleaned about customers who register for a frequent-guest program is valuable, but can be acquired through mobile payments.
4. A better way to promote traffic is by offering a buy one/get one deal, which the chain is currently doing through an online game called Friend or Faux. About 35 percent to 40 percent of U.S. consumers have never been in a Chipotle, and 55 percent of customers visit only a couple of times a year, said CFO Jack Hartung. Getting non or lax users into stores with the offer of a two-for-one deal could hook them on the food and convert them into frequent customers, he told a financial analyst.
5. One of Chick-fil-A’s secret success ingredients is running contrary to the industry in its franchising approach. Instead of awarding development areas or even multiple locations to partners, the high-grossing chicken chain limits a franchisee’s scope usually to one store, occasionally two and very rarely three. Four stores is just not an option.
As a result, said VP of Product Strategy and Development David Farmer, ownership is in the stores constantly, and their focus is intense. The retention rate of the operator-partners has never dipped below 97 percent, he said.
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