Chipotle Mexican Grill
still wants you back.
The beleaguered burrito chain, which this week forecast its first ever quarterly net loss as a publicly traded company, is trying to recover from a devastating E.Coli outbreak from last fall that only struck a few dozen stores but has kept customers nationwide away in droves.
So in February, Chipotle resorted to giving away millions of burritos for free, and on Wednesday, the chain announced it was extending the promotion.
“Free burritos—turns out it works. It brings people into the restaurants,” Chipotle CFO Jack Hartung told Wall Street analysts at an industry conference on Wednesday.
Since last month, some 5.3 million customers have downloaded the coupon from Chipotle’s app, but only 2.5 million actually redeemed it. While the 50% redemption showed people are still cautious, at least many customers were still interested in Chipotle.
In February, comparable sales at the restaurant fell 26.1%, a more moderate decline than in January. The number of transactions fell a more modest 9%, meaning that a lot of people coming to stores were eating their free burritos.
That may not yield revenue, but at least it gets people back in the habit of eating at Chipotles. And perhaps more importantly, it fills Chipotle restaurants with customers to create the sense that things are back to normal as people walk by a restaurant and see it’s no longer empty.
So now Chipotle is sending out 21 million coupons via direct mail for free food in the coming weeks. Those coupons will expire on May 15. (It has already sent out 7 million of them or so.)
The recovery is still fragile—last week, when news came of a Boston-area restaurant being closed, comparable sales declines deepened again, falling 27%. And that means Chipotle has to keep its foot on the promotion pedal given that many customers still have a negative view of the company.
Still, co-CEO Steve Ells tried to convince Wall Street that customers were coming back. (Shares have fallen almost a third to $500 since the crisis—and if Ells wants his bonus, they have to go back up to $700.)
“We’ve built a long established trusted relationship with our customers,” Ells said. “While that trust was questioned recently, we’re delighted to see that they’re returning in large numbers.”
That may be true, but Chipotle’s sales declines are still shockingly high, meaning profit-sapping promotions are likely to persist.