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What Happened
Shares of Chipotle Mexican Grill, Inc. (NYSE: CMG) are down 8.9% at 12:10 pm. EDT on June 28, following the press release and yesterday 's presentation on new business strategies aimed at reviving the growth of the fast – growing burrito chain of yesteryear. After the market closed on June 27, Chipotle management called on analysts to discuss plans to relocate and consolidate its headquarters, closing 55 to 65 existing restaurants, and marketing and promotional plans.
So what?
A combination of elements likely influenced Chipotle's market vision following the presentation of its new strategy. For starters, the company announced that it would close between 55 and 65 existing restaurants, including the five Pizzeria Locale restaurants outside of the Denver area, in the coming quarters.
![Worker making a burrito on a Chipotle food preparation line. 19659007] Source: Chipotle </p>
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<p> Head office consolidation, which includes moving its offices from Denver and New York to one location in Southern California, as well as restaurant and other closures unusual items $ 1359 million over the next quarters. </p>
<p> This shift from the local Pizzeria, considered a potential source of growth beyond the Chipotle brand, as well as the closure of so many Chipotle sites after years of steady growth, get almost all the money. attention of the financial median today. This probably leads at least some investors to click the "Sell" button. In addition, the stock has jumped since Brian Niccol was announced as the new CEO of Chipotle in mid-February: </p>
<p> <img decoding=](https://media.ycharts.com/charts/28a4ede918953198467dfb41b2c646bf.png)
CMG Data by YCharts
Even after the sale of 39 Today, the title of Chipotle the best performing restaurant chains this year, up nearly 45%.
Now what?
After several years of failure to establish a positive pull with eaters, it seems that this new strategy has made many investors anxious. Ironically, Niccol was specifically hired to take action and establish a plan to revive Chipotle's restaurant traffic growth through food innovation, enhanced operations to leverage digital control and marketing. more aggressive.
Niccol led a very successful turnaround at Taco Bell before Chipotle, improving his relevance to the restaurant's younger customers and significantly increasing sales and profits during his tenure. And he's been doing essentially what the market seems to be selling today: increasing Chipotle's marketing efforts (and possibly spending), investing in delivery and digital delivery partners, and expanding the menu for attract more customers, including items like milkshakes that have not generally been associated with the burrito chain. The company's strategy also includes cost reduction and the use of technology to increase operational efficiency.
Niccol was hired to do at Chipotle what he did at Taco Bell. Although there is little doubt, it will be more difficult to perform at Chipotle, based on its motto "food with integrity" and emphasizing natural ingredients, the economy The company 's restaurant remains one of the most convincing in the industry. stay well below the peak of before 2015 – which are the envy of many competitors.
Even after today 's decline, Chipotle shares are trading at a rich valuation of nearly 49 times the earnings expected in 2018. But if Niccol' s strategy pays off and that Chipotle can start to increase its traffic again, the price of today could look like a bargain in a few years
Can Chipotle execute this new strategy? We have not seen the brand get a lot of traction with previous attempts over the past two years, but the story of Niccol's success is the reason why he was given the big chair. It's time to see if he can do a Taco Bell redux at Chipotle.
Jason Hall owns shares in Chipotle Mexican Grill. The Motley Fool owns shares and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
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