Chipotle Has to Finally Shake Off Its E. Coli Slump in 2017
Chipotle Mexican Grill posted the restaurant chain’s first annual sales decline since going public over a decade ago, as management struggled throughout the year to get a firm grasp of a prolonged food-safety crisis that started in the fall of 2015.
On Thursday, the burrito purveyor reported sales for 2016 totaled $3.9 billion, tumbling 13% from a year earlier. The chain—once a darling restaurateur that posted consistently strong sales growth—found itself struggling to win back diners after an E. Coli outbreak hit several states called into question Chipotle’s (CMG) promise of fresher and healthier foods than rivals like McDonald’s (MCD).
While fourth-quarter revenue climbed by 3.7% to $1.03 billion from a year ago, the growth was less than Wall Street expected. Per-share earnings tumbled to 55 cents per share from $2.17 a year earlier, hurt by higher labor expenses and a big increase in food costs, most notably due to higher avocado prices. Chipotle had previously reported that same-restaurant sales—a key metric that excludes new store growth—dropped 4.8% for the quarter.
But encouragingly, comparable restaurant sales improved 14.7% in December, a steady improvement from the 20% drop in October and 1.4% decline in November. Chipotle also projected a “high-single digits” increase in sales at comparable restaurants for 2017.
“In the upcoming year we intend to continue to simplify and improve our restaurant operations, utilize creative marketing to rebuild our brand, and further the roll-out of our digital sales efforts,” said CEO and founder Steve Ells in a statement. Ells said that focusing on those initiatives will restore diners’ affinity for the Chipotle brand.
Ells promises that a big ad campaign that the company is planning in April—the largest the company will ever undertake—gives him “great confidence that 2017 is teed up to be a great year for Chipotle.” The campaign will focus on the themes of “taste and great ingredients,” both themes that many associated with the brand before the E. Coli woes tarnished the chain’s once-pristine image.
Chipotle will benefit from easy sales comparisons in 2017 as revenue declines were so bruising last year. That turnaround comes at a time when many restaurant chains—including McDonald’s and Starbucks (SBUX)—have lamented soft traffic trends as consumers broadly turn away from visiting restaurants and instead favor grocery stores, where prices have been lowered of late. Observers say that many consumers say restaurant prices are too expensive and that could be because the industry has had to digest higher labor costs.