Chipotle Shares Jump 20% As New CEO Starts Turnaround Plan
Chipotle Mexican Grill (CMG) has a brand new CEO and Wall Street seems to think he has the Midas Touch needed to get the burrito chain back on track at last.
Brian Niccol became CEO on Mar. 5 after as stint as head of Yum Brands’ Taco Bell, tasked with turning around a one-time Wall Street darling laid low by food safety scandals in 2015 and inadequate responses to the long, deep sales plunge that followed. In his first quarterly conference call with analysts and investors, Niccol said the company was “clearly a recovery story in the U.S.” and projected a sense he knows how to fix Chipotle’s deep problems.
Investors were clearly swayed as Chipotle shares shot up 20% on Thursday morning following that call and better-than-expected first-quarter results.
Niccol, who rejuvenated Taco Bell by introducing popular new items and using clever marketing, is widely expected to apply that strategy to Chipotle, which has seen only modest menu innovation in the last couple of years. The stock increase is testament to the faith investors have in Niccol, but he hasn’t yet laid out a detailed plan.
Perhaps after the drama of the last couple of years that saw the departure from the CEO office of founder Steve Ells, a steady hand is enough for now. Still, ideas that were once out of the question for Chipotle, such as drive-throughs and certain menu items, are being considered. And the company is looking at mobile ordering, too.
Chipotle (CMG), whose shares rose to $413.79 in morning trade, still very far from $742 all-time high hit in 2015, has flailed since outbreaks of E.coli, salmonella, and norovirus were linked to the chain in 2015. The company launched expensive ad campaigns and margin-destroying product giveaways to win customers back to little effect. Niccol has said that Chipotle, a pioneer in the use of fresh ingredients at fast-food chains, needs to remind consumers of what is different about its food.
One of his first moves as CEO was to replace long-time Chipotle marketing chief Mark Crumpacker, who had been a crucial part of the previous regime’s team. He tapped a fellow Taco Bell alum and Chipotle’s new ads are hipper and more focused on ingredients. Chipotle is also trying to reduce food and packaging waste.
Though Niccol had no hand in Chipotle’s first quarter, he did get a boost from its decent results: sales at Chipotle restaurants open a least 13 months rose a better-than-expected 2.2% during the quarter, even though fewer customers came. Those that did shelled out more money for what they bought. Chipotle’s new food safety measures have led to price increases.