4 Reasons Why Chipotle’s Comeback Failed

It’s been nearly two years since Chipotle’s massive food-safety crisis sent its reputation and stock prices into a tailspin. In late 2015, the formerly robust burrito chain was linked with a rash of norovirus, salmonella, and E. coli outbreaks that impacted hundreds of customers across multiple states. The events triggered a federal investigation as well as lawsuits from customers and Chipotle’s own shareholders, while raising serious questions about the company’s supply chain and ability to enforce food safety standards at its restaurants.

Chipotle attempted to repair the damage with a multi-pronged comeback plan involving lofty statements like becoming “industry leaders in food safety.” The chain hired new food safety consultants and promised to adopt new food-safety protocols and procedures. It also increased the frequency of in-store inspections and announced it would add bar codes to individual food items to help the company track ingredients back to their origin point, in the event of future outbreaks. At the same time, Chipotle’s marketing team was working to attract customers back to stores by giving away loads of free burritos and beefing up its marketing budget with a $50 million investment.

Yet, despite Chipotle’s best efforts, the company’s problems continued to mount, and customers showed their lack of trust by taking their burrito money elsewhere. The continuous onslaught of bad press and the chain’s slow stock recovery prompted founder and CEO Steve Ells to step down from his post in November. He will remain with the company as executive chairman.

The jury is still out as to whether Ells’s ouster can right Chipotle’s listing ship or simply placate company shareholders (the chain is still trying to revamp the brand; a newish innovation includes adding a drive-thru). From rodent infestations to security breaches, here are four reasons why Chipotle’s comeback efforts didn’t work:

It couldn’t keep food safety scandals at bay

Although Chipotle’s efforts to redesign its food safety systems and retrain employees seemed reasonable, in practice, the chain failed to shed its food safety-tainted reputation this year. In July, at least 13 customers reported norovirus illnesses after eating at a store in Sterling, Virginia, causing stock prices to plummet. Just a day later, a customer filmed mice scurrying across the floor (they allegedly fell from the ceiling) at a Dallas-area Chipotle. The location shuttered in August.

Following the incidents, then-CEO Steve Ells reiterated to investors that the new protocols were “excellent” and pledged to institute a “zero-tolerance policy” to ensure adherence to food safety protocols. However, the handling of the incidents failed to renew trust among consumers, with CNBC reporting that same-store sales initially rose to 4.5 percent in the first half of July, only to drop down to 2.3 percent. The renewed problems and falling stock prices resulted in a fresh lawsuit from angry investors claiming the company deceived them with “wrongful acts and omissions.”

New menu items failed to entice consumers

As a company, Chipotle has always been slow to evolve its core menu. However, in the wake of the food safety scandals, the company started adopting what one analyst described as some very “un-Chipotle” tactics to lure wayward customers back to its ranks: innovating new items. During a second quarter earnings call with investors, chief marketing and development officer Mark Crumpacker hailed the expanded food options as “an ideal way to spark the necessary interest” among “lapsed customers.” Thus far, those new items have failed to live up to their promise.

First came chorizo — a non-traditional blend of pork and chicken launched in summer 2016. The first new protein option introduced by Chipotle since 2014, the chorizo lasted just over a year before it was removed from the menu. While the company cited operational “efficiency” as a reason, tepid consumer response was likely a factor. As Eater New York critic Ryan Sutton put it, “Chipotle, against all odds, found the 1 percent of chorizo that tastes like garbage.”

Queso came next. Classic renditions of the glossy Tex-Mex cheese dip typically attains smooth liquid consistency with help from Velveeta, but Chipotle’s “food with integrity” pledge meant it had to stick with “real ingredients.” During the testing period at the chain’s Chipotle NEXT Kitchen in New York, Eater NY critic Robert Sietsema remarked that the queso was “notably bland” and “also a bit grainy.” During the official product rollout, customers were less kind, with one Twitter user describing it as “a crime against cheese.”

Chipotle has since “tweaked” the recipe to amp up the heat and give the queso a smoother texture, and is reportedly testing it for use in nachos. Sales initially spiked after the introduction of dip before falling off again, according to the company’s Q3 earnings report, but the damage from the queso’s rough launch may already be done.

Meanwhile, Chipotle’s first-ever dessert — buñuelos — is still waiting for its official launch in larger markets. Sietsema, during his visit to the test kitchen in July, noted the dish was “a good deal” but not at all like true buñuelos. After trying the dessert, a reporter for Business Insider labeled it nothing more than “a rather confusing distraction.”

An April data breach did nothing to improve confidence

In April, customers were alerted to a possible hack of the chain’s payment processing systems, as well as those for its affiliate chain Pizzeria Locale. The company later confirmed that roughly 2,250 restaurants were impacted by the security breach between March 24 and April 18. Hackers used credit cards’ magnetic stripes to target card numbers, expiration dates, and verifications codes.

The company completed its probe as of its second quarter earnings report. But the burrito slinger took on $30 million in liability, according to the Denver Business Journal, and as a result the company’s earnings per share were depressed by 64 cents per share.

Chipotle still hasn’t discovered “the next Chipotle”

Hoping that lightning might strike twice, Chipotle embarked on its new fast-food chain concept ShopHouse Southeast Asian Kitchen in 2013. ShopHouse allowed customers to customize their meals just like Chipotle, but customers still favored Chipotle’s Mexican-influenced menu (the company even tested wraps at ShopHouse locations due to demand). Seeing the writing on the wall, then-CEO Steve Ells revealed in 2016 that the company would stop investing in the brand because it hadn’t “demonstrated the ability” to grow. Chipotle officially pulled the plug on all 15 ShopHouse locations in March, selling off the leases to a different company.

Meanwhile, Chipotle placed its bets on the crowded world of fast-food burgers — something Ells has described as having “broad customer appeal” with a small capital investment. Tasty Made was born in 2016 in Lancaster, Ohio, and it appears its almost In-N-Out-esque menu still hasn’t found its niche. After receiving mixed reviews, the company abandoned its “responsibly-raised” hormone- and antibiotic-free patties in favor of cheaper conventional beef and, as of this fall, has brought in Top Chef alum Richard Blais to spice up the menu. As of December, Tasty Made has yet to make the leap into any new markets.

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