Chipotle's turnaround plan arrives with a Thud – The Crazy Motley

The shares of Chipotle Mexican Grill (NYSE: CMG) exploded earlier this year when Taco Bell veteran Brian Niccol was named CEO of the fast and casual chain. But now, there seems to be some remorse on the part of the buyer.

Chipotle's recovery plan, revealed on Wednesday, has big changes. In addition to closing underperforming stores, the company will refocus its marketing, invest more in digital control and launch a new loyalty program next year. The rebuilding of the brand and the improvement of operations in existing restaurants are on the agenda

The plan came with little concrete details, and no indication of when Chipotle's financial results would turn the corner. The market was not thrilled, sending the stock up to 9% lower on Thursday morning.

Confectionery Stores

Chipotle has grown rapidly in recent years, helping to boost sales at a time when existing stores were struggling with the aftermath of the 2015 food security crisis. It operated 2 408 restaurants by the end of 2017, compared with only 1,230 six years earlier.

The company now plans to close up to 65 underperforming locations under the Niccol plan. These store closings, as well as the relocation of the head office and other recently announced restructuring measures, will cost $ 115 to $ 135 million.

Chipotle will probably be more disciplined with new stores after years of blazing expansion. Niccol said in the press release announcing the plan that he "can easily see a future where Chipotle more than doubles the deal to $ 10 billion in revenue." This future is probably far away, as it would require thousands of new locations.

Building the Brand

The Chipotle brand has been tarnished by the food security crisis, and it has never fully recovered. Niccol plans to reorganize the company's marketing efforts, aimed at making Chipotle "a more culturally relevant and appealing brand to cultivate love and loyalty."

This will require marketing expenses more important. The company has already tried to boost its spending, almost doubling its marketing budget in 2016 compared to 2014 in the aftermath of the food crisis. This has not solved the problems of the company.

Chipotle will need a new message, which will arouse people's interest in the brand. During the conference call on the plan, Niccol summed up the problem: "There was a general lack of customer understanding, our marketing budgets had been allocated inefficiently."

In addition to the redesign of marketing, Chipotle plans loyalty program next year. The company has tried a limited-time loyalty program in 2016, but it now appears that Chipotle is willing to take the gratification of frequent customers more seriously. The company provides little detail, but I would expect the new program to be deeply integrated with the company's digital control system

on digital

Although Chipotle already offers mobile ordering and pickup through its mobile application, Niccol believes that this part of the business is far from reaching its full potential. "We believe that our digital businesses have a long period of growth and that they can be a multi-billion dollar company," said Niccol in the press release announcing the plan.

Its digital sales currently amount to about $ 500 million a year. 10% of total sales What's worse, Niccol said that more than half of customers are unaware that the mobile order option exists. Better marketing will help solve this problem, but the company also has work to do to improve the experience.

The Chipotle Mobile App was redesigned at the end of last year and works well in my experience. But the pickup process has its flaws. Niccol said that one of the big problems is that it is not clear exactly where the orders should be picked up. This problem is compounded when the restaurant is busy. The company is testing pickup shelves that make it more obvious, which should help streamline the process.

Chipotle is also working to integrate delivery via third-party services into its application. It can already be ordered via DoorDash, Postmates and Tapingo, but the lack of integration of the application fragments the experience. The company plans to test delivery through its application, and it hopes to roll out the feature to more than 2,000 locations by the end of the year.

A long way to go

In addition to all the announced changes, Chipotle is also testing new menu items, including quesadillas and milkshakes. The company provided no indication of when or if these items would be presented nationwide.

It is clear from Chipotle's plan that Niccol sees many problems with the fast-casual chain. He was unable to provide any timeline, saying "it is too early to predict the timing and precise impact of each of these strategies on the results. But he added that he believes these initiatives "will lead to higher unit volumes and higher margins in the future."

When this future comes, no one will guess.