Chipotle’s Co-CEO Gives Half Its Restaurants a ‘C’ Grade

Chipotle founder and co-CEO Steve Ells said on Tuesday at the Barclays conference that he doesn’t think his restaurants are run well enough to bring customers back after last year’s E.Coli safety crisis that has sent the burrito chain’s sales plummeting for four straight quarters and little relief in sight.

Ells told analysts that he gives only half of Chipotle’s restaurants, or about 1,000 locations nationwide, an A or a B grade. Most of the rest get a C (a passing grade), and those weak stores are concentrated primarily in the Northeast, Ells said, noting that the company is changing its leadership structure in the region to address that. He described those weak restaurants as having dirty dining rooms, messy soda filling stations and slow lines. Lines are back not because of a massive customer return but because of staff shortages.

“I’m not satisfied with the rate of recovery and the quality of the restaurant experience,” said Ells. “We are not offering the necessary guest experience.”

But those problems stem from many of the safeguards Chipotle has put in to avoid a repeat of the devastating food crisis: Chipotle added 80 operating procedures, overwhelming workers and causing higher employee turnover, which in turn has hurt service.

“We threw a lot at our employees,” Ells said. He added: “We took our eye off the ball on customer service.”

He has a point: dirty restaurants and slow service in key markets like metro New York, Philadelphia and Boston are not how Chipotle will stop its sales skid: third-quarter comparable sales plunged 21.9%, while deep discounts to get customers back slammed profit.

Ells sent Chipotle shares plummeting on Tuesday after he admitted he was nervous about the company’s ambitious 2017 sales and profit forecast. The company says it will it will need to raise prices to cover minimum wage increases, and higher food costs but that now is not the time since it must win back customers trust, Ells said.