Help is on the way for Chipotle Mexican Grill. (CMG).
The struggling burrito restaurant chain has poached the top executive at Yum Brands’ (YUM)Taco Bell, Brian Niccol, to be its new chief executive. He will be tasked with getting Chipotle back on track after more than two years of trying to come back from food safety episodes, including an E.Coli outbreak that send customers fleeing. Niccol, who has been CEO of the immensely successful Taco Bell chain since 2015, will replace Chipotle founder Steve Ells on March 5th, the company said on Tuesday.
Investors clearly liked the news: Chipotle shares jump 12% to $280 in after hours trading, but remain well below their $742.23 peak nearly three years ago.
Chipotle’s sales took dramatic dives after the 2015 E.Coli outbreak and other food safety episodes, and the chain, trying to win back customers, resorted to expensive marketing campaigns and incentives that have dented profits. In its most recent quarter, Chipotle’s same-store sales rose a modest 0.9%, showing how hard it is proving to be to get customers to come back after all this time. Chipotle has tried everything from giveaways, to a new loyalty program to new products such as queso dip, but sales remain well below pre-crisis levels for the company.
Ells, who co-founded the one-time Wall Street darling in 1993, said in November he would step down after Chipotle found a CEO.
At Taco Bell, Niccol was instrumental is giving the chain a hipness and place in pop culture it hadn’t previously enjoyed. He proved savvy in using social media to achieve that goal. He also introduced things like breakfast, mobile ordering and payments at Taco Bell. He will have his work cut out for him: a survey by investment firm Cowen & Co cited by the Wall Street Journal found that customer ratings of Chipotle’s food quality and trustworthiness have fallen since 2015.
Chipotle’s problems eventually attracted the attention of activist investor Bill Ackman, whose Pershing Square Capital Management is a major Chipotle shareholder. Ells himself had acknowledged a need for a quicker pace of change at Chipotle. In selecting a new CEO, Chipotle focused on speeding up innovation in Chipotle’s sourcing and food preparation, including menu innovation, delivery, catering, and expansion of the chain.