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Chipotle Still on the Road to Recovery, High Costs Plague
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Chipotle Mexican Grill, Inc. (CMG - Free Report) had a good share of negative publicity throughout 2016 due to an issue of food-borne illnesses that surfaced toward 2015-end. As a safety measure, the company was forced to close several outlets. Ever since then, this fast-casual Mexican chain has been undertaking aggressive efforts to restore its economic model as well as regain customer trust.
However, high costs associated with restaurant operations and stiff competition in the fast-casual restaurant space continue to remain potent headwinds.
Notably, shares of the company have lost 25.6% in the past year, widely underperforming its industry’s growth of 10.2%.
Will the Appointment of New CEO Bring Any Change?
In order to chalk out a viable business strategy, Chipotle discarded its former co-CEO model and appointed Steve Ells as the company’s sole CEO in 2016. However, the company did not refrain from enhancing its board. Toward this end, Chipotle recently appointed former Yum! Brands' (YUM - Free Report) executive Brian Niccol to replace Ells. Chipotle aims to make use of Brian Niccol's expertise in restaurant operations, digital technologies, and branding to augment guest experience.
Although the appointment of the new CEO might help in Chipotle’s turnaround, it is yet to be seen if he can bring about remarkable positive changes for the company. This is because strategies followed at a quick-service restaurant like Taco Bell are not likely to work for Chipotle, which is more of a healthier fast-casual option.
High Costs and Stiff Competition Remain Concerns
Chipotle’s continued efforts to connect with its customers in order to retrieve their trust and loyalty, as well as bring them back to its stores on the back of high marketing and promo expenses have been hurting its profitability. Moreover, the company is incurring additional costs to support its newly designed food safety program. In addition to wages, Chipotle is also facing high labor costs from training its workers to aptly implement food safety practices.
Also, competition from fast-casual, quick-service and casual dining restaurateurs like BJ’s Restaurants (BJRI - Free Report) and El Pollo Loco (LOCO - Free Report) is expected to remain fierce with respect to price, food quality, service, location and concept, which may adversely impact Chipotle’s operating margins and profits.
Sales Building Efforts a Respite
Chipotle’s strong marketing initiatives, ongoing improvements in customer experience, improved digital ordering channels, along with increased focus on menu innovation are the key growth drivers. Owing to these efforts, Chipotle somewhat managed to witness 7.3% year-over-year revenue growth in the fourth quarter of 2017. By focusing extensively on digital innovation, the company hit new records as its digital sales mix was 8.6% of sales in the last reported quarter.
Furthermore, adoption of new food safety protocols is expected to reap results in the long term. In March 2017, Chipotle fulfilled its pledge to use no added colors, flavors or preservatives of any kind in any of its ingredients. In fact, the company now makes use of only 51 real ingredients to prepare all of its food, in stark contrast to most other fast food chains.
Chipotle’s enhanced focus on making better food accessible to everyone should thus aid in driving traffic and sales.
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With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
Image: Bigstock
Chipotle Still on the Road to Recovery, High Costs Plague
Chipotle Mexican Grill, Inc. (CMG - Free Report) had a good share of negative publicity throughout 2016 due to an issue of food-borne illnesses that surfaced toward 2015-end. As a safety measure, the company was forced to close several outlets. Ever since then, this fast-casual Mexican chain has been undertaking aggressive efforts to restore its economic model as well as regain customer trust.
However, high costs associated with restaurant operations and stiff competition in the fast-casual restaurant space continue to remain potent headwinds.
Notably, shares of the company have lost 25.6% in the past year, widely underperforming its industry’s growth of 10.2%.
Will the Appointment of New CEO Bring Any Change?
In order to chalk out a viable business strategy, Chipotle discarded its former co-CEO model and appointed Steve Ells as the company’s sole CEO in 2016. However, the company did not refrain from enhancing its board. Toward this end, Chipotle recently appointed former Yum! Brands' (YUM - Free Report) executive Brian Niccol to replace Ells. Chipotle aims to make use of Brian Niccol's expertise in restaurant operations, digital technologies, and branding to augment guest experience.
Although the appointment of the new CEO might help in Chipotle’s turnaround, it is yet to be seen if he can bring about remarkable positive changes for the company. This is because strategies followed at a quick-service restaurant like Taco Bell are not likely to work for Chipotle, which is more of a healthier fast-casual option.
High Costs and Stiff Competition Remain Concerns
Chipotle’s continued efforts to connect with its customers in order to retrieve their trust and loyalty, as well as bring them back to its stores on the back of high marketing and promo expenses have been hurting its profitability. Moreover, the company is incurring additional costs to support its newly designed food safety program. In addition to wages, Chipotle is also facing high labor costs from training its workers to aptly implement food safety practices.
Also, competition from fast-casual, quick-service and casual dining restaurateurs like BJ’s Restaurants (BJRI - Free Report) and El Pollo Loco (LOCO - Free Report) is expected to remain fierce with respect to price, food quality, service, location and concept, which may adversely impact Chipotle’s operating margins and profits.
Sales Building Efforts a Respite
Chipotle’s strong marketing initiatives, ongoing improvements in customer experience, improved digital ordering channels, along with increased focus on menu innovation are the key growth drivers. Owing to these efforts, Chipotle somewhat managed to witness 7.3% year-over-year revenue growth in the fourth quarter of 2017. By focusing extensively on digital innovation, the company hit new records as its digital sales mix was 8.6% of sales in the last reported quarter.
Furthermore, adoption of new food safety protocols is expected to reap results in the long term. In March 2017, Chipotle fulfilled its pledge to use no added colors, flavors or preservatives of any kind in any of its ingredients. In fact, the company now makes use of only 51 real ingredients to prepare all of its food, in stark contrast to most other fast food chains.
Chipotle’s enhanced focus on making better food accessible to everyone should thus aid in driving traffic and sales.
Zacks Rank
Chipotle carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
See This Ticker Free >>