July22,2019 BARRON’S 7
From E. Coli to New Highs
CHIPOTLE’SLONG LINES ARE BACK. AND SO IS THE STOCK.
Thefast-casualburritochainhitanall-timehighthis
past week, marking the unlikeliest of comebacks.
Shares of Chipotle Mexican Grill (ticker: CMG)
areup73%in2019toarecent$747.52.Ifyougotthat
oneright— Barron’s didnot—patyourselfontheback.
Less than two years ago, you’ll probably recall,
Chipotle was dealing with E. coli outbreaks at stores across the coun-
try. The phrase “food safety” came up 20 times on Chi-
potle’s earnings call in July 2017, when then-chief execu-
tive Steve Ells declared: “Yesterday, the Centers for
Disease Control and Prevention announced that its E.
coli investigation is over.”
Good news, for sure. But it’s still pretty grim when a
restaurant CEO is talking about the CDC. Less than a
year later, Ells was no longer running the company he
founded in 1993. He remains chairman of the board.
Chipotle has largely stopped making public health
headlines. Its marketing has stayed focused on freshness and quality.
“Chipotlehasdoneareallyamazingjob,”Chicago-basedrestaurant
consultant Aaron Allen tells Barron’s. “The setback around the food
safety issues that they had certainly was one of the most tremendous
losses of value ever seen in food service.”
Onlineordering,delivery,and anewloyaltyprogramhavegivenChi-
potlemorewaystoserveandlearnaboutitscustomers,butthoseare
effectively table stakes in today’s restaurant business.
So what about the menu? The chain has never emphasized bever-
ages,butitrecentlybegansellingSanPellegrinoandMexicanCokena-
tionally.Carneasadasteakisalikelyadditiontoitsproteinlineuplater
thisyear.Thecompany,meanwhile,isdrivingnewinterestinexisting
foodswithonline-onlypromotionsliketheonethathighlightsfavorite
menuchoicesamongthesoccerplayersontheWorldCup-winningU.S.
Women’sNationalTeam.Inshort,thecompanyislookingforwaysto
engage diners without overcomplicating things.
Chipotleislikelytosaymoreaboutitsprogressonnextweek’searn-
ingscall.Inastatementthisweek,chieffinancialofficerJackHartung
told Barron’s :“We’restillintheearlystagesonmanyofourkeyinitia-
tives and remain focused on driving the business forward for many
years to come.”
Alittle more than a year ago Iattended a tasting event at Chi-
potle’stestkitcheninManhattan—anoperationlaunchedunderElls—
designed to show off potential menu additions, including nachos and
quesadillas.Theeventgeneratedsomebuzz.Butneitherofthedishes
have gone national yet, and no rollout is expected anytime soon. Chi-
potle basically failed with nachos, and it hasn’t even mattered.
Instead,Chipotleisbackontopservingessentiallythesamemade-
to-order burritos, tacos, and bowls that first set the restaurant world
onfire.“Peoplearen’tthatadventurous,”saysChrisBrandt,Chipotle’s
chief marketing officer. “We ask consumers, ‘What would make you
comeintoChipotlemore?’”Theanswer,Brandtsays,tendstobe“inno-
vative twists on the familiar.”
That’s not the answer I expected last year, when Chipotle hired
TacoBell’schiefBrianNiccol asitsnextCEO.Afterall,someofTaco
Bell’sinfamousofferings—likeDoritosLocosTacos—came
on his watch.
Restaurants,however,arecomplicatedaffairs.Brandt
explains that every change Chipotle considers needs to
provepopularwitheatersandmakeeconomicsense.And
it can’t cause problems on the assembly line. It’s not so
easytopassallthreetests.Astastyastheysound,nachos
andquesadillasweren’tplayingwellinChipotle’skitchen.
Nachos would have been simple enough to produce if
they were covered in Chipotle’s queso, but diners in re-
gionaltestinginsistedonmeltedshreddedcheese.AndChipotlerestau-
rants, sadly, have no easy way to melt that cheese.
They also lack a simple way to make quesadillas crisp and melty.
The company tested a sandwich press, but management worried that
it wouldn’t operate fast enough in the chain’s busiest stores. Both
dishes are being rethought. (As any Chipotle fan familiar with its “se-
cret menu” knows, you can get nachos and quesadillas if you ask po-
litely.)
Restaurantcompanieshavenotalwaysbeensodeliberate.In2008,
Starbucks (SBUX)wasforcedtodiscontinuealineofbreakfastsand-
wichestomuchfanfare.“Thescentofthewarmsandwichesinterferes
withthecoffeearomainourstores,whichisthekeytothecoffeeexpe-
rience that forges our connection with customers,” CEO Howard
Schultz said shortly after he returned to turn around the then-strug-
gling coffee giant.
Chipotle’s brand isn’t about aromas, but the traditional formula is
clearly still resonating with customers. Same-store sales rose 9.9% in
the first quarter of the year. Over the same period, same-store sales
at Shake Shack (SHAK)—the fast-casual take on burgers—were up
just 1.7%. Chipotle management credits more orders and higher
prices. Queso, the company’s onetime savior, barely gets talked about
anymore.
Becauseacolumnaboutfoodrequiresatastetest,Itreatedthe Bar-
ron’s newsroomtochips,guacamole,andquesothispastweek.Theguac
was gone in minutes. The queso sat there all day long.
Chipotlehittheingredientjackpotinitsearliestdays,andtheorigi-
nal menu remains a hit. If you can keep the CDC away, the food will
take care of itself.
Chipotle’s stock is
up 73% in 2019,
and those CDC
investigations feel
like ages ago.
Streetwise
ByDavid Marino-Nachison