Wednesday , February 14, 2018 - 1:55 PM
(c) 2018, The Washington Post.
It’s been a rough few years for Chipotle. The chain’s woes, which began in 2015 with a widespread E. coli outbreak, have led to multiple health scares and plummeting sales.
But this week the fast-casual company finally gave customers -- and investors -- something to cheer about this week when it announced Brian Niccol of Taco Bell would take over as its new chief executive. Shares of Chipotle stock soared 12 percent following Tuesday’s announcement, amid hopes of a turnaround for the struggling chain.
It was a telling moment for the industry, analysts said, bringing together two rivals that at one time seemed to have nothing in common. Chipotle, founded in 1993, has long marketed itself as the anti-Taco Bell, emphasizing fresh ingredients and antibiotic-free meat. It was an approach that worked for years, until a series of foodborne illnesses, changing tastes and growing competition knocked the one-time darling off its game. Shares of the company’s stock have fallen nearly 60 percent in the last three years.
But analysts say they are hopeful that Niccol, who has led Taco Bell for three years, can help address some of the chain’s most pressing problems. Here are four things the 43-year-old fast-food executive could bring to Chipotle.
1. Efficiency and organization.
First things first, analysts say: Chipotle needs to slow down.
The company has been expanding rapidly in recent years, adding dozens of new stores but not enough infrastructure to support them, says Howard Penney, an analyst for for Hedgeye Risk Management.
“Chipotle has been growing too quickly, and without a game plan,” he said. “This is a company that desperately needs leadership.”
One of the easiest ways to simplify operations and offer faster service, analysts said, would be to wash and prep food in a central location and send it out to nearby stores. Currently, each of Chipotle’s 2,408 restaurants do their own prep work, such as washing lettuce and chopping tomatoes, said Ivan Feinseth, an analyst for Tigress Financial Partners in New York.
“They have to keep to their core values -- organic produce and antibiotic-free meat -- but need to find a way to be more consistent and efficient,” he said. “That’s been one of their biggest challenges.”
Niccol’s experience at Taco Bell, where he oversaw a company twice the size of Chipotle with 6,849 locations and $10.1 billion in annual sales, makes him a good fit, analysts said. He also helped oversee the fast food chain’s mobile ordering technology, which analysts say makes for quicker and more efficient service.
“He has figured out to make fast-food faster,” Feinseth said, “and that’s something Chipotle could really use.”
2. More menu items.
Among the biggest problems at Chipotle: is menu.
With few exceptions, the chain’s lineup has remained largely the same for 25 years: Tacos, burritos, bowls. And while some customers like that consistency, analysts say many others are bored.
“Their menu is stale,” Feinseth said. “Chipotle need something other than queso to spice things up.”
That lack of imagination, analysts say, has become a growing problem for Chipotle as a number of fast-casual eateries -- offering everything from poke to customizable pizza -- give customers new alternatives for the same price.
“If you look at spending patterns, pretty much everybody who walks into Chipotle is buying just a burrito or a burrito bowl -- and maybe guacamole,” Schloetzer said. “There is a huge opportunity to add to their sales, whether that’s by offering combo meals or new items” like nachos.
At Taco Bell, Niccol had a track record of ushering in new novelties and limited-time deals, like Doritos Locos tacos, nacho fries and “chocoladillas,” which are grilled flour tortillas filled with Kit Kats.
“Chipotle has lost its way and needs to be taken to the next level,” Feinseth said.
Does that mean Doritos-shelled tacos may be on the horizon for the fast-casual chain? “No, no, no,” Feinseth said. “They don’t have to do that. There are ways to improve the process without going to the Taco Bell extreme.
Another obvious way Niccol could expand Chipotle’s menu, analysts say, is by adding breakfast.
“There is still a shortage of protein-based breakfasts available in the quick-casual space,” Feinseth said. “Most quick breakfasts are things like muffins and bagels. People want more protein, and Chipotle has an easy solution.”
At Taco Bell, Niccol helped launch the company’s fast-growing $1 breakfast menu, and analysts say a similar approach at Chipotle could help the company reach new customers.
“They have grills, they have tortillas: All they have to do is add cage-free eggs and nitrate-free bacon,” Feinseth said. “Add some coffee, maybe oatmeal, and you’ve got a full breakfast offering.”
4. Social media savvy.
Taco Bell in recent years has emerged as an unlikely social media darling, using a mix of humor, cheesy jokes (“What do you call fries that aren’t yours? #NachoFries”) and viral memes to win over millennials.
“Boyfriend has denied me @tacobell this evening,” a user named Brandi Omega tweeted on Tuesday. “Time to find a new boyfriend,” Taco Bell tweeted back to its 1.9 million followers. (Chipotle, by comparison, has 882,000 Twitter followers.)
“Whichever public relations intern or team of meticulous, well-trained professionals is in charge of @TacoBell is doing a bang-up job with a clever combination of retweets, sassy comebacks, hashtags and whimsical life advice,” wrote HuffPost. “ We kind of, a little bit, maybe want Taco Bell to be our best friend.”
That strategy has paid off, analysts said, by getting younger consumers to think of Taco Bell as a hip alternative to its rivals. And, they said, it’s a strategy Chipotle could use.
“That younger demographic used to be Chipotle’s bread-and-butter customer -- you could walk into Chipotle and it’d be filled with college-age kids,” Schloetzer said. “But you walk in now and it’s empty. They’ve lost that connection.”
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