Chipotle may give away 9M burritos to boost sales

Chipotle may give away 9M burritos
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Chipotle Mexican Grill could give away roughly 9 million burritos as it fights to win back customers following several food safety mishaps that have dented its sales.

Executives speaking at an investment conference on Wednesday said the company has recovered about one-third of sales lost to a string of food safety lapses last year, and more free offers may be forthcoming as part of its turnaround strategy.

The formerly high-flying burrito chain plans to send 21 million free food coupons via snail mail to U.S. consumers. Chipotle expects roughly a quarter of those coupons to be redeemed.

Source: Chipotle

Chipotle closed stores on Feb. 8 for an all-company food safety town hall meeting and invited diners to text the company to request a free burrito. Demand for the offer was more than double what the company expected, as 5.3 million requests were logged. Redemption rates on the text coupons have been 67 percent, executives said.

Based on a burrito cost of $7.10, the average price of burritos offered at the chain in Los Angeles restaurants, the value of those two giveaways would total more than $62 million.

The direct mail and text coupons offer free entrees, and while the company sells a variety of dishes, Reuters used its popular burritos for the calculations.

"So free burritos, it turns out, works," Chief Financial Officer Jack Hartung said at a Bank of America Merrill Lynch investor conference. "It brings people into the restaurant."

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Costs related to Chipotle's recovery efforts are running higher than expected and prompted the chain on Tuesday to warn that it will post its first quarterly loss as a public company.

Sales and visits remain down from a year ago, but have come off their worst levels in January. That said, paid transactions are still 30 percent lower, executives said.

The Pacific Northwest and the Northeast, which were most affected by 2015's food poisoning outbreaks, have been the slowest to recover.

Free food offers often are most effective with already loyal customers. Chipotle's "top loyal" customers dine at the chain at least 25 times a year and account for up to 20 percent of its sales.

Future offers aimed at spurring visits will likely be delivered via mobile devices and could take the form of buy-one-get-one-free, or BOGO, said Mark Crumpacker, Chipotle's chief creative and development officer.

"As we move into the summer and we do additional promotions, you probably will see BOGO creep back in," Crumpacker said.

Shares of Chipotle closed down 0.5 percent at $500.35.