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Chipotle Takes It on the Chin


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Being a reporter in a restaurant-led industry, there’s no shortage of executives that confess their business model or store ambiance is an awful lot like Chipotle’s. After the burrito colossus reported awful quarterly results in the wake of its many food safety travails this week, I predict those days of endless Chipotle adulation have come to a screeching halt.

As reported by Nicholas Upton at our sister publication, Restaurant Finance Monitor, its latest 8-K filing was a real stinker: Comps are down -29.5%, revenue down 23.4% (to $834.5 million) and the Denver-based company delivered a $26.4 million net loss for Q1 2016—oof.

The quarterly call shows that the expensive marketing push and the 6 million free burritos sent out to customers haven’t meaningfully brought back paying customers after the food safety issues that began in October 2015.

As for the cost of the all-in food safety updates, management said spending there meant higher food costs, a rarity in this era of extremely low commodities. Food costs are up to 35.3% of revenue, an increase of 1.4% as new food testing and production costs as well as more food waste costs.

Lower sales, more marketing and higher food costs means that the enviable 27.5% margins in Q1 of 2015 are down, way down to 6.8% of sales.

April hasn’t been much better, with same store sales down about 22%; something management attributes to cold weather and “the news out of Boston” where restaurant closures under new cleanliness procedures grabbed headlines assuming another outbreak.

That’s one of the largest dangers Chipotle still has, and what Goldman Sachs restaurant analyst Karen Holthouse called the “headline risk” in a recent analysis of the company.

Still, the management team said the company would continue to be historically aggressive with marketing. Moran estimated advertising costs will be in the 3-4% range, more than double Chipotle’s typical spend. But instead of free meals for everyone, Moran said the company would be moving to more buy-one-get-one deals instead.

There was no mention of Chipotle’s trademark in the better-burger world during the earnings call.

With Chipotle’s design aesthetic tiring, its food mix lacking innovation (or even much evolution) and a lot of aggressive fast-casual players vying for stomach space and prime real estate, we have clearly turned the page from the “we’re just like Chipotle” phenomenon infecting executives and marketers across the restaurant business.

That’s a good thing; I cringe every time I’ve heard that comparison in recent years. Nothing against those foil-wrapped burritos, but it’s not 1995 anymore and Chipotle is no longer setting the curve.

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The latest news, opinions and commentary on what's happening in the franchise arena that could affect your business.

Tom KaiserTom Kaiser is associate editor of Franchise Times. He can be reached at 612.767.3209, or send story ideas to tkaiser@franchisetimes.com.
 
Beth EwenBeth Ewen is editor-in-chief of Franchise Times. She can be reached at 612.767.3212, or send story ideas to bewen@franchisetimes.com.
 
Nicholas UptonNicholas Upton is staff writer at Franchise Times. He can be reached at 612.767.3226, or send story ideas to nupton@franchisetimes.com.
 
Mary Jo LarsonLaura Michaels is managing editor of Franchise Times. She can be reached at 612.767.3210, or send story ideas to lmichaels@franchisetimes.com.
 
Mary Jo LarsonMary Jo Larson is the publisher of Franchise Times Magazine and the Restaurant Finance Monitor.  You can find her on Twitter at
 twitter.com/mlarson1011.
 
Nancy WeingartnerNancy Weingartner is editor-at-large of Franchise Times magazine and the editor of the Food On Demand media project. You can reach her at 612-767-3200 or at nancyw@franchisetimes.com.
Follow her on Twitter at http://twitter.com/nanweingartner.
 

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