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Chipotle is doing some very 'un-Chipotle' things to win back diners

  • After a meeting with Chipotle's head of investor relations and treasury, Mark Alexee, BTIG analyst Peter Saleh said that the company will be implementing some strategies that it hasn't pursued aggressively in the past.
  • Most recently, Chipotle has been testing queso in some 350 locations in Colorado and California and has been developing salad, dessert and margarita offerings in its test kitchen in New York.
  • In addition, Chipotle is looking to update its guest experience and alter its advertising strategy.
Chipotle
Daniel Acker | Bloomberg | Getty Images
Chipotle

Chipotle Mexican Grill is changing how it does business, hoping that it will at last be able to put a string of food safety incidents behind it and lure back customers who ditched the brand.

After a meeting with Mark Alexee, Chipotle's head of investor relations and treasury, BTIG analyst Peter Saleh said that the company will be implementing some strategies that it hasn't pursued aggressively in the past.

"We came away from the meeting with the sense that management is rethinking the company's approach to many aspects of its strategy and operations and aggressively pursuing sales drivers that they previously shunned as being un-Chipotle including menu innovation and TV advertising," Saleh wrote in a research note Tuesday.

While other fast-casual restaurants thrive on wacky limited-time offers, Chipotle has made few changes to its menu in its 24-year history.

The company began testing chorizo in select restaurants in Ohio, New York, California, Colorado and Washington, D.C., in June 2016 before rolling out the menu item nationwide in October of that year. The addition of chorizo was uncharacteristic of the burrito chain and was indicative of Chipotle's desire to drive traffic back to its restaurants.

According to Saleh, chorizo — a spicy chicken and pork sausage — only accounts for about 3 percent of protein sales within the company and could be swapped out in favor of other menu innovations.

"We have added to our menu over the years (burrito bowls, salads, sofritas and chorizo, for example), and tested other items (including a roasted tomato salsa, and an expanded beverage offering)," Chris Arnold, a spokesman for Chipotle, told CNBC.

"So we have never said never to menu innovations, it has simply not been a driver of our business the way it is for other chains. For us to add to our menu, we have always wanted to be sure that what we are adding fits within our menu overall, and does not add unnecessary complexity to our operations."

Most recently, Chipotle has been testing queso in some 350 locations in Colorado and California and has been developing salad, dessert and margarita offerings at its test kitchen in New York.

However, menu innovation hasn't come without growing pains for Chipotle. So far, the company has received tepid reviews of its queso.

"They've talked about queso, they have to do it," Saleh told CNBC. "They just have to get the product right."

He said that the company has been testing different types of cheeses and ingredients to improve its current iteration of queso and won't roll the product out nationally until it's right.

Chipotle has long avoided serving queso at its chains because of its "food with integrity" pledge, which promises that its menu items will not contain artificial flavors, colors or preservatives. In a since deleted video, Chipotle said queso is typically "made with artificial stabilizers to keep its shiny liquid form," explaining why it hadn't offered it before.

In addition, Chipotle could soon be exploring more breakfast-centric items and a new beverage lineup. Saleh said that Chipotle management said the beverage category — primarily nonalcoholic — was a big opportunity for the brand, which hasn't changed its beverages in the past eight to 10 years.

In addition to menu innovations, Chipotle is looking to update its guest experience and alter its advertising strategy. The burrito chain has been reluctant to create television ads, preferring more grass-roots efforts and quirky film shorts to entice customers.

Chipotle embarked on a new ad campaign in April, which included national TV commercials. Using the tagline "As real as it gets," the campaign focuses on the quality of Chipotle's ingredients.

Saleh said that Chipotle has had to pivot on some of its old strategies and adopt new ones that are more in line with what its competitors in the restaurant industry are doing.

"We continue to be open to these kinds of innovations, particularly as they relate to our ongoing efforts to enhance the guest experience," Chipotle's Arnold told CNBC.

The company has been testing drive-thru service at a location in Ohio, and ordering kiosks in 25 New York restaurants. Chipotle has also invested in digital ordering and delivery services.

Despite these changes, Saleh remains skeptical about Chipotle's ability to woo diners back in the near term, especially after last month's norovirus incident, which put a dent in sales in the latter half of July.

"We remain on the sidelines until we have greater confidence in sales trends and the initiatives mentioned above take hold," Saleh said.