After a year of plunging sales, Chipotle is changing nearly everything about its business.
The burrito chain said this week that it’s adding new menu items, redesigning restaurants, launching television ads, testing digital ordering tablets, and offering a ton of free food — all things that represent a stark departure from Chipotle’s business strategy for the last two decades.
Chipotle is making the changes following three straight quarters of plunging same-store sales in the wake of two E. coli outbreaks last year that affected its restaurants in 14 states.
The company focused on overhauling its food handling and preparation procedures in the first half of this year in an effort to prevent another outbreak and restore trust with customers.
Now, Chipotle is aggressively testing new strategies to draw customers back to its restaurants.
In its biggest change to date, Chipotle is embracing menu innovation after nearly 20 years of offering the same ingredients.
The company added chorizo, a chicken and pork sausage blend, at the beginning of October — marking its second major addition to the menu in two decades aside from tofu sofritas in 2014.
On an earnings call Tuesday, executives said the company plans to keep testing and adding new menu items on a regular basis.
The next new addition will be a dessert, according to Chipotle co-CEO Steve Ells. Ells said the company is currently testing two desserts and will soon roll out one of them nationally.
Ells also said he isn’t ruling out serving breakfast — something that customers have been asking Chipotle to do.
“We are actively exploring ways to enhance the guest experience by offering new additions to our menu,” Ells said. “We believe that this is a good way to entice infrequent or lapsed customers to return as well as a way to increase sales.”
As the company considers new menu items, it’s also trying to cut costs by designing a cheaper restaurant model, slowing down new restaurant growth, and pulling the plug on its Southeast Asian chain, ShopHouse.
The company has developed a new restaurant design that will cost $40,000 less to build than its current design with “improvements in lighting, acoustics, seating, customer flow and the presentation of our kitchen,” according to Mark Crumpacker, Chipotle’s chief marketing officer.
In the meantime, Chipotle is shelling out money for TV ads — which the company hasn’t done since 2012 — and is considering hiring a new advertising agency.
Chipotle is currently running 30-second TV ads in several test markets and said that if the tests go well, the ads will roll out nationally.
The company is also making changes that will be a little less obvious to customers.
For example, Chipotle is building out second “make-lines” in all of its restaurants, which are teams of employees in the back of its restaurants that fulfil catering and online food orders.
The second make-lines are expected to speed up online ordering. They will also be responsible for fulfilling orders from in-store digital tablets, which the company is currently testing.
The tablets allow customers to order and pay for their food without interacting with an employee.
In spite of all the changes that Chipotle is making, Wall Street has little confidence in the company’s ability to turn things around and return its restaurants to robust sales growth any time in the near future.
Chipotle’s stock fell 10% after announcing its third quarter earnings on Tuesday.
“While management is taking significant and positive steps to transition into a better positioned company (led by technology and data insights), we do not believe the progress will be easy or consistent,” Deutsche Bank analysts wrote in a recent note. “We remain sceptical that it has enough momentum to overcome its internal issues or external challenges.”
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