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Chipotle Announces Chorizo, Rewards Program in Light of Slumping Sales

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All about the company's first quarterly loss ever

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In an earnings call with analysts today, Chipotle executives announced a plan to bring skeptical customers back to the fast-casual burrito chain. In addition to a massive marketing push and buy-one-get-one-free offers, the chain will soon introduce a new protein to its lineup — chorizo — and a temporary rewards program.

Right on target with analyst predictions, the company announced same-store sales decreased 29.7 percent in the first quarter of 2016. Revenue decreased 23.4 percent, to $834.5 million, while comparable restaurant transactions (a unit-by-unit sales comparison over time) decreased 21.1 percent. The company's net loss was $26.4 million.

Chipotle is currently in the midst of a nationwide advertising campaign, which will run through June and targets all locations in the U.S. and Canada. Upcoming marketing efforts will include a short film and promotional game, which the company has tried in the past. According to Chief Marketing and Development Officer Mark Crumpacker, who spoke on today's earnings call, the chain is also considering two additional strategies to bring back lapsed customers: a limited-time frequency incentive for returning customers, and menu items meant to bring back the brand's once most-fervent supporters, many of whom have reduced their visits since food safety issues began plaguing Chipotle.

The aim is to target the most loyal Chipotle consumer — i.e. the one who visits 25 or more times per year. The company saw the largest declines among its top loyal (25+ visits a year) and its "light" consumers (those that visit two to five times per year). Noting the decline in visits amongst its once most-loyal customers, Crumpacker said the company would love to get that "habit" back up. "We do believe it's beneficial to us to get people back in the habit of visiting Chipotle [as often as they used to]."

Though executives provided few details, they noted that a temporary rewards program would run in the summer and fall but likely wouldn't become permanent — at least, not yet. "There's always the possibility of a permanent program [down the line]," said Crumpacker. Loyalty programs have proven successful at other chains like Starbucks, although the coffee giant's recent retool of its program has angered customers. McDonald's is also working to incorporate a loyalty program for customers who use its app.

The introduction of chorizo to the menu won't be entirely new. The company first introduced chorizo at its Kansas City restaurants and was preparing to expand it to a second market just as the food safety crisis hit. CEO Steve Ells described the chorizo as "a blend of chicken and pork spicy sausage, cooked on our plancha" with lots of "crispy bits, nice spice, and really good texture." Ells did not comment on the fact that, traditionally, chorizo is made from pork only. As for whether the new menu item would become permanent, executives said there's no reason why not.

The company will also roll out new discount offers on the heels of its free burrito and chips and salsa specials. According to CFO Jack Hartung, customers redeemed more than six million burritos and over one million orders of chips and salsa (or guacamole) in January and February. Redemptions totaled $500,000 in a single day just a few days after those offers began.

The burrito behemoth plans to continue offering deals, albeit those that will generate revenue. Rather than free burritos, for example, it will soon roll out BOGO offers.

When asked why sales didn't seem to improve that much from March to April, executives blamed the coverage of a norovirus incident last month in Boston. In that instance, four employees who contracted the virus stayed home sick and the restaurant was temporarily closed, though no customers are known to have gotten sick as a result. "Unfortunately, some called this 'another outbreak,'" said Hartung. "Those headlines interrupted our sales recovery." Sales were down 27 percent for a week after that incident.

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