3 ways Chipotle Mexican Grill plans to win back customers

Key Points
  • Chipotle CEO Brian Niccol plans to close up to 65 underperforming locations and to bring more discipline to the restaurant chain.
  • The overhaul includes new menu items, a "happy hour," faster mobile and online orders and a clever new marketing campaign to build "love and loyalty" with customers.
  • The plans were outlined on an investor call Wednesday.
This former Taco Bell chief has big plans for Chipotle
This former Taco Bell chief has big plans for Chipotle

Chipotle Mexican Grill's new CEO Brian Niccol rolled out his strategy to woo customers back to the troubled burrito chain with a focus on new menu items and faster mobile and online orders.

The company also plans to spend a lot more money on a new marketing campaign to build "love and loyalty" with its customers, he told analysts on a conference call announcing the plans Wednesday.

As part of the overhaul, Niccol is closing up to 65 underperforming locations and said he's bringing more discipline to the company. Shares fell 8 percent to $420.71 at 10:43 a.m. Thursday morning.

Niccol said he's trying to remake Chipotle into a lifestyle brand, instead of just a restaurant chain. Part of that requires changing its culture, making the company more nimble, fun and accountable to its customers, he said.

He's using much of the same playbook he used running Taco Bell. His appointment has breathed new life into Chipotle's stock, which has soared more than 80 percent since his role was announced in February. Investors now hope he can win back the confidence of Chipotle's diners.

The restructuring will cost the company between $115 million and $135 million, up to $60 million of which will be booked in the second quarter, CFO John Hartung said on the call. About $30 million of that is allocated to lease buyouts. Hartung said about half of the planned restaurant closures will be complete within the next 30 days with the rest closing over the next several quarters.

Niccol said the company is about halfway through an initiative he calls the "big fix," updating the lighting, painting and other fixtures as needed across the chain. The upgrades will be completed by the end of the year, he said. He's extending the restaurant's hours, opening earlier and closing later and looking at adding a "happy hour" with snack items and drinks in the afternoon and after 8 p.m., he said.

Niccol said a lack of discipline and accountability hampered Chipotle's ability to recover from a series of outbreaks of E. coli, salmonella and norovirus beginning in 2015 were tied to its restaurants. The food safety problems tanked sales and halved its market value.

"We were not sufficiently results focused which made us reactive and hampered execution. I found skills gaps in many areas and insufficient data for decision making that have held us back from reaching our potential," Niccol said during a special investor call on Wednesday.

Here's how he plans to win customers back:

Technology gets an upgrade

Niccol is no stranger to taking chances on digital innovations. During his time at Taco Bell, he introduced mobile ordering and payment across 7,000 locations in the U.S. and reached an agreement with franchisees to finance new tech initiatives, including self-serve kiosks and expanded delivery.

More than half of Chipotle customers "aren't even aware that you can order ahead for pickup," Niccol said.

At Chipotle, digital sales are about $500 million, or about 9 percent of total sales. Chipotle plans to put more marketing dollars behind online and mobile ordering and improve its in-store experience. While Niccol said the app was easy for customers to use, finding their food wasn't.

"While the app experience that was rolled out late last year is best-in class, in many of our restaurants, it is unclear to our customers where to pick up that order," Niccol said. "Which detracts from the experience."

Chipotle has been testing digital order pick-up shelves which prominently display orders once they have been filled.

Digital order pick up selves are being tested at select Chipotle Mexican Grill Locations
Chipotle Mexican Grill

"When we talk about modernizing and digitizing our restaurant, it means making it easier to access Chipotle," Niccol said. "We want our guests to enjoy Chipotle whatever way is most convenient for them. Whether it be through ordering and paying digitally ahead of time through delivery or via a group ordering options."

The company will be also be testing the option for delivery through its app at about 1,500 locations, with the hope of having the feature available at 2,000 locations by the end of the year. Chipotle currently has a partnership with third party delivery company DoorDash.

Chipotle also hopes to boost employee productivity with other digital innovations. The addition of flat screen TVs at some of its food prep lines will replace printed digital orders and boost the speed it takes to complete orders.

Digital orders come through a second-make line at Chipotle stores via flat screen TVs. 
Chipotle Mexican Grill

"This results in much better throughput, greater capacity to build digital sales and even more importantly for our customers much better accuracy," Niccol said.

Not just food, but a lifestyle

Part of the success of brands like Taco Bell, Wendy's and Arby's is that customers don't just eat the restaurants' food, they live it. From promotional T-shirts to snarky Twitter feeds, these brands do more than just sell food — they sell a lifestyle.

Chipotle became tight-lipped and closed off from consumers in the wake of its food safety issues. Niccol said that Chipotle has "lost some of its cultural relevance" and would need to changes its image.

"Chipotle will become a brand that people want to know about, want to be a part of and want to wear as a badge," Christopher Brandt, Chipotle's chief marketing officer, said on the call.

To accomplish that mission, Chipotle is shaking up its marketing and customer interaction. The company has produced a number of new advertisements that feature a fun and witty tone like Wendy's and Arby's.

The burrito chain has been reluctant in the past to create television ads, preferring more grass-roots efforts and quirky film shorts to entice customers. The company didn't advertise on TV until last year.

"Our goal is to make our marketing dollars more efficient and effective and most importantly help drive traffic," Brandt said.

Chipotle has been working to heighten brand recognition by buying ad time during the season finales of hit TV shows, partnering with the National Basketball Association and sponsoring video game players that play the hit game Fortnite.

Mixing up the menu

Niccol isn't just a tech guru. When he moved to Taco Bell he changed the company's slogan from "Think outside the bun" to "Live Mas."

This rallying cry for innovation was just the beginning. Niccol would go on to launch the chain's breakfast offerings and push for more ingenuity in the kitchen.

He was the driving force behind some of Taco Bell's most wildly successful limited-time menu offerings, such as the Quesarito, Naked Chicken Chalupa and Nacho Fries. He's also the reason Doritos Locos Tacos, which started as a limited-time-only offer, have graduated to a fixture on the fast food chain's menu.

At Chipotle, Niccol's innovation will be more measured.

The company is already testing a new iteration of the quesadilla that is folded differently for ease of eating and speed of cooking as well as nachos, an avocado tostada and several frozen beverages. The tostada, in particular, is part of Chipotle's move to capture more than just diners looking for a full meal.

As snacking occasions become more popular, Chipotle is exploring a happy-hour offering that includes $2 tacos and a drink between 2:00 PM and 5:00 PM.

"We're also exploring a similar offer for increased late-night sales after 8:00 PM," Niccol said.

WATCH: Guy Adami taste tests new Chipotle menu items

Trader Guy Adami taste tests new Chipotle menu items
Trader Guy Adami taste tests new Chipotle menu items