Chipotle's E. coli outbreak brings chain down to earth

Thu Apr 28, 2016 7:19pm EDT
 
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By Lisa Baertlein

LOS ANGELES (Reuters) - In its struggle to win back customers after last year's food safety issues, Chipotle Mexican Grill Inc is embracing strategies it once rejected.

Executives at the formerly high-flying burrito chain announced plans this week to expand its menu, explore a loyalty program, spend heavily on traditional advertising and potentially put the brakes on some new restaurant deals - moves embraced by its competitors but not previously by Chipotle.

Successful brands such as Starbucks Corp and Panera Bread Co used similar strategies after they saw slowdowns in once robust sales.

"Chipotle is just falling in line with the way the rest of the industry operates," said Darren Tristano, president of food service consulting firm Technomic.

After years of breakneck growth, now "Chipotle is just your average restaurant company," said Hedgeye Risk Management restaurant analyst Howard Penney.

Before Chipotle was tied to E. coli, salmonella and norovirus outbreaks last year, it could raise prices with little to no pushback from diners. It also kept finding new ways to squeeze more sales and profits from its restaurants, fueling outsized share gains.

This week the chain posted its first-ever quarterly loss as millions of dollars in free food giveaways failed to lure back enough paying customers to satisfy Wall Street.

Shares are trading down more than 40 percent from their all-time high of over $742 on July 1.   Continued...

 
Chipotle Mexican Grill is seen in uptown Washington, February 8, 2016. REUTERS/Carlos Barria