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It's official: Chipotle is ditching chorizo and placing its bets on queso

  • Chipotle confirmed Monday that it is ditching chorizo to make room for its queso on its menu.
  • The spicy protein only accounts for about 3 percent of protein sales within the company, according to BTIG analyst Peter Saleh.
  • Chipotle could face some challenges with its queso moving forward.

Chipotle Mexican Grill's chorizo is on the chopping block after less than a year on the menu.

The company confirmed Monday that the burrito chain will be ditching the spicy protein to make room for its queso, which it rolled out nationally on Sept. 12.

"When we decided to move forward with the national rollout of queso, we opted to replace chorizo on the line with queso, so chorizo is going away," Chris Arnold, spokesman for Chipotle, told CNBC via email. "While we really liked the chorizo (and many customers did too), the efficiency of our model has always been rooted in part, in doing just a few things so we can do them really well."

Chorizo only accounts for about 3 percent of protein sales within the company, according to BTIG analyst Peter Saleh. Saleh speculated last month that Chipotle might swap the item out in favor of other menu innovations.

Saleh said Monday that because queso has been a heavily requested item by Chipotle diners, there will be a fair amount of interest and trial.

"How much that sticks is yet to be seen," he said.

The company began testing chorizo in select restaurants 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.

"Chorizo didn't sell as expected as it isn't a mainstream American consumer ingredient," Darren Tristano, a Technomic advisor, told CNBC via email. "Chorizo is a more authentic flavor and Chipotle serves the more 'Americanized' and pop marketplace. Queso is very popular and has likely had good results with consumers."

However, Chipotle could face some challenges with its queso moving forward. Not only is competition in the category intense, but many customers have not warmed up to the chain's version of queso dip.

In initial tests in Colorado and California, Chipotle's queso received tepid reviews, especially on Twitter. And that continued following its national rollout. Many said that the dip had a "grainy" texture while others applauded its smokey taste.

"A very negative reaction to the queso launch suggests [Chipotle] launched a product that is not meeting consumer expectations, and, as a result, missed a potentially significant opportunity to add queso as an incremental add-on," Karen Holthouse, a Goldman Sachs analyst, wrote in a research note Monday. "The consumer reaction on Twitter suggests few customers will become repeat users, and it could also limit any initial traffic bump around trial."

In comparison, California-based Del Taco recently launched its own queso blanco, which is smooth and creamy, like traditional queso, and has been getting rave reviews on Twitter since its launch.

"The impression is that Chipotle has no real strategy when it comes to menu innovation, it just seems to be grasping at straws in an attempt to come up with a winning product," Neil Saunders, managing director of GlobalData, told CNBC via email. "That both confuses customers and does no favors to the sales line."

Against a backdrop of sector-wide weakness, Chipotle shares were recently trading down more than 3.4 percent.

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