By Tonya Garcia, MarketWatch
Everything was going the wrong way for Chipotle when CEO Brian Niccol, a former head honcho at Taco Bell, took the reins in March 2018. The fast-casual chain couldn’t seem to shake off the damage done to its previously strong reputation, financial results and stock-market returns by a rash of food-borne-illness outbreaks nearly 2½ years earlier.
Chipotle’s stock dropped from $750 at the close on Oct. 13, 2015, to as low as $251.33 on Feb. 13, 2018, shedding 67% of its value as news that customers had fallen sick from E. coli poisoning began making headlines. As management raced to fix one set of problems, others popped up, including a data breach in March and April 2017 that affected restaurants in five states.
They were wrong. This Aug. 29, the stock set a fresh all-time closing high of $843.64, topping a record set two days prior. Chipotle’s stock, in fact, has soared more than 93% in 2019, compared with the S&P 500 index’s /zigman2/quotes/210599714/realtime SPX +0.45% 20% gain.
“When I got to Chipotle, the company had tons of ideas — an almost crippling [number],” Niccol told MarketWatch. But now “I think we’re focused on the right strategies, execution is getting better, the response has exceeded expectations — I think that’s why we’ve seen the response from the financial markets.”
The turnaround at Chipotle extends to most of the business, including — importantly — the food. The company introduced a limited-time carne asada menu item this week that SunTrust Robinson Humphrey said “could be a meaningful traffic and check driver.”
/zigman2/quotes/200781108/composite CMG -1.11% You might say Chipotle has gone from making its customers retch to, once again, making its shareholders rich.
The food is the same … sort of
The Chipotle brand has always distinguished itself on issues like sustainability, sound animal husbandry and responsible sourcing.
“Nothing’s changed on the culinary aspect and the ‘food with integrity’ purpose,” Niccol said.
Well, not quite “nothing.” Chipotle turned its focus to food safety in the months after the illness outbreaks were reported. The company adopted a “stage gate” system that tests, analyzes and gathers feedback about menu ideas to determine what proceeds to a national rollout. So rather than push forward on every idea, the company has instituted a system of improved discipline, Niccol said. “We’re using the stage-gate process to ask, ‘Does this idea have merit?’ ”
The new approach seems to be yielding more successes for a company that, while it might have freely explored a multitude of ideas, rarely — as compared with rival counter-service chains and their frequent introductions of seasonal and limited-run items, rarely changed its menu.
One current limited-time-only offer: carne asada. And Chipotle is already testing other items, with queso blanco getting a limited-time push in three cities this summer.
“It’s not that they have gone away from that approach towards food, but they have broadened their horizons, in part because they’ve gotten past the food-safety issues,” said Mark Kalinowski, chief executive of Kalinowski Equity Research. “A willingness to have new menu items is a dramatic shift for them culturally. There’s more reason, on this front, to go to Chipotle.”
Moreover, Chipotle is making news with its newer food items.
“They’re in the news for the wrong reasons a lot less,” said Kalinowski. “So people can focus on the positive, like [that] the food is tasty and the service is quick.”