Why Chipotle's Brian Niccol is the CEO of the year

Chipotle has turned itself around in 2018 under new CEO Brian Niccol.The restaurant chain tapped the ...

Posted: Dec 21, 2018 5:46 PM
Updated: Dec 21, 2018 5:46 PM

Chipotle has turned itself around in 2018 under new CEO Brian Niccol.

The restaurant chain tapped the former head of Taco Bell to be its leader in February, replacing Chipotle founder and chairman Steve Ells.

Chipotle Mexican Grill Inc

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Chipotle (CMG) customers had been hesitant to trust the restaurant after an E. coli outbreak made 60 Chipotle customers in 14 states ill in late 2015 and early 2016. The cause is still unknown.

Chipotle also struggled to contain several norovirus incidents in its restaurants over the past few years.

But since Niccol joined the company, Chipotle's news has been mostly positive. Sales have rebounded. And the stock is up nearly 40% this year, making it one of the top-ten performers in the S&P 500.

"We are changing the cultural narrative around our brand," Niccol said during a call with investors in June, adding that the company can increase sales by "reminding people why they love Chipotle."

Modernizing Chipotle

Niccol has taken steps to modernize Chipotle's ordering process and make the company more competitive with other fast food and fast casual chains that have taken the leap into mobile ordering and payments.

During the company's third-quarter conference call with analysts, the word "digital" was mentioned 41 times. Chipotle has continued to invest heavily in its Smarter Pickup Times initiatives so people don't have to wait in line as long for an order.

Chipotle also began to offer delivery via DoorDash in the second quarter and added delivery services through its own mobile app and website in the third quarter.

That helped boost digital sales by nearly 50% in the third quarter. They now account for more than 10% of Chipotle's total revenue.

Renewed focus on the food

The reason that Chipotle went from restaurant industry darling to food pariah so quickly was because of concerns about food safety.

Niccol decided to tackle the issue of the company's food quality head on in a new marketing strategy that launched in September.

The ads — dubbed "For Real" — focused on the more than 50 fresh ingredients featured in the items on its menu. It emphasized that "everyone can both recognize and pronounce" Chipotle's ingredients, including avocados, pork and lime juice.

The combination of the new marketing and the increased push to digital has paid off. Chipotle said total sales rose nearly 9% in the third quarter, while sales at restaurants open at least a year were up 4.4%.

Coming in 2019: Mexican chocolate milkshakes and higher prices?

So what's next for the company? New menu items are probably on their way. Tired of the same burrito bowl? Niccol is contemplating changes to the menu to woo back old customers — and attract new ones.

Over the summer, the company started testing new items, such as quesadillas, avocado tostadas, nachos, a new spring salad and a Mexican chocolate milkshake. Some of those new menu offerings could be available nationwide in 2019.

One analyst suggested Chipotle should also raise prices on some of its existing menu items.

Although the company has recently hiked prices, BTIG analyst Peter Saleh noted in a report Wednesday that "despite its premium positioning and higher quality ingredients, Chipotle remains underpriced compared to its traditional fast-casual Mexican peers."

Similar menu items at Chipotle rival Qdoba were priced more than 10% higher, while offerings at Baja Fresh and Moe's Southwest Grill cost 6.7% and 3.1% more respectively, according to a survey conducted by Saleh's team. Salads at popular fast casual newcomers Chopt and sweetgreen were even more expensive, Saleh added.

Don't be surprised if Chipotle looks to take advantage of its comeback in 2019 with some smaller, more frequent price hikes.

Chipotle chief financial officer Jack Hartung hinted at that possibility during October's earnings call, saying that "we're in the early stages of talking to some outside parties about our menu compared to competition" and that "you'll more likely see us take smaller price increases rather than wait two or three years or so and then take a larger one."

And it seems safe to say Niccol would rather see headlines about Chipotle customers complaining about slightly more expensive carnitas and sofritas than getting sick from eating its food.

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