Chipotle chief marketing officer Mark Crumpacker gave an interesting quote to Ad Age this week, buried at the bottom of the story: He said that the company doesn’t want to start advertising in traditional media like TV because “Once you get on that model, I think it’s very, very hard to get off.”In fact, not advertising on TV is key to Chipotle’s business model. The company spends almost nothing on advertising—just $6 million nationwide last year. (By comparison, Arby’s, the smallest of the large fast-food chains, spends about $100 million and McDonald’s, the biggest, spends more than $650 million.)
Chipotle has reduced its above-the-line advertising costs in the last two years:
- Chipotle’s marketing budget / of which, ad budget*
- 2011: $32 million / $5.8 million
- 2010: $26 million / $7.5 million
- 2009: $21 million / ~ $7-9 million
- Source: Ad Age, Denver Business Journal.
Chipotle did advertise on TV for the first time ever this year, buying a single ad during the Grammy Awards that ran only once, for instance. But In its annual report, Chipotle describes why it believes advertising is bad for its business:
“Our marketing has always been based on the belief that the best and most recognisable brands aren’t built through advertising or promotional campaigns alone, but rather through all of the ways people experience the brand.”
The main method it uses for promotion is “word-of-mouth publicity,” the company says. Chipotle even lists advertising as a “risk factor” to its business, if the company were forced to do more of it for competitive reasons (see page 13):
“That could require us to change our pricing, advertising or promotional strategies, which could materially and adversely affect our results of operations or the brand identity that we have tried to create.”
The strategy has worked. Last year, Chipotle had sales of $2.3 billion, a 23 per cent sales increase and an 11 per cent same-store increase. Carol Phillips, an adjunct marketing and branding instructor at University of Notre Dame told Age that Chipotle’s street cred comes from not being on TV:
“Millennials view the lack of TV as more authentic … Millennials are likely to dismiss a lot of claims.”
Three years ago, Chipotle flirted with the idea of advertising but decided against it. The company looked at hiring 27 ad agencies before deciding it didn’t like any of them. Currently, the company has no sales and marketing line in its operating costs, just a “general and administration” line.
The result is that a lack of advertising is no built into the company’s profitability. It earned only $214 million on its revenues last year, and has had even thinner margins in previous years.
In other words, even a modest advertising budget (compared to other advertisers in the category) would render the chain unprofitable, if it happened.
“The alternative is to switch to the type of marketing that every other fast-food company uses — with these new menu items and big ad campaigns to promote them,” said Mr. Crumpacker. “I think once you do that, you can’t go back, because those work. … Once you get on that model, I think it’s very, very hard to get off. I want to try to do this as long as I can.”
“Chipotle will eventually get to that point, that to drive same-store sales they’ll have to go to TV … As you get into the top spenders in the category, there’s a correlation between share of voice and share of stomach.”
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