Several months after E. coli first cropped up in Chipotle’s stores, the chain is revealing some of its plans for bringing back wary customers. Spoiler: It’s going to be expensive.
“It’s going to be messy in terms of margins, it’s going to be messy in terms of earnings,” chief financial officer Jack Hartung said at the ICR Conference for retailers and restaurateurs on Wednesday (Jan. 13). “We’re not going to be the efficient business model that everyone has come to know Chipotle has become during 2016.”
Starting mid-February, Chipotle plans to invest in marketing efforts like direct mail and traditional ads to nudge customers back to stores. Chipotle is also doubling the amount of free food that restaurants can give away to customers, according to CNBC. Executives didn’t offer many details on what the promotions will look like, but said “humility is an undertone to some of it.”
Another goal of the advertising campaign is clearing up with customers what’s happened at Chipotle. The chain’s health woes began in late October with a spate of E. coli cases linked to its restaurants in the Pacific Northwest, but intensified after a norovirus outbreak traced to a Chipotle location in Boston sickened more than 140 college students in December.
“Consumers have conflated those two things and are somewhat confused about what happened where and when,” Mark Crumpacker, Chipotle’s chief creative and development officer, said at the conference.
Adding to the confusion, the Centers for Disease Prevention and Control also said in December that it was investigating five new cases of E. coli connected to Chipotle’s restaurants.
Chipotle’s stock surged about 6% on Wednesday as executives discussed their plans to bring back customers and said repeatedly that they believe the E. coli outbreak has passed. “We will get our customers back, and we can look forward to 2017,” Hartung said.
Chipotle initially predicted comparable-store sales would fall by as much as 11% in the fourth quarter, because of the health scares. But last week, the company darkened its forecast, noting in an SEC filing that sales likely dropped 14.6% for the quarter and 30% for the month of December. Final results for the quarter will be disclosed on Feb. 2.
Analysts broadly cut their price targets on Chipotle on the news in the filing. “We expect CMG to point to a hard-fought and long-tailed [same-store sales] recovery across 2016, and to stress that there is still much work to be done in assessing the sizeable costs associated with the company’s supply chain overhaul,” Wells Fargo Securities wrote in a Jan. 6 research note.
Chipotle’s stock has lost about 30% since health officials first began tracing reports of E. coli to its restaurants at the end of October. Despite reassurances on Wednesday, the company warned in its Jan. 6 filing that “future sales trends may be significantly influenced by further developments.”