Chipotle’s march to recovery will be a long, uphill slog

Any lingering hope that Chipotle Mexican Grill would make a speedy sales recovery after a crippling food safety crisis has shriveled. The march to regain consumer trust is looking like a long slog.

The US burrito chain today (July 21) reported its second quarter earnings, showing same-store sales continued to shrink for the third consecutive quarter, though not by as much as earlier in the year. The company also reported that its revenue fell by nearly 17%, compared to the same period in 2015, to $998 million.

“It’s been frustrating that there have been things beyond our control,” Chipotle chairman and co-CEO Steve Ells said. “We are doing things that are industry-leading and we’re going to find a way to share that with customers.”

The company has been desperately working to regain the favor of consumers and Wall Street alike, following a food safety outbreak in 2015 that sickened more than 300 people across 14 states, hospitalizing 22. News of the norovirus outbreak dented foot traffic so badly that one company executive told investors it was “kind of eerie” for customers to pass by once-busy locations and find short lines. Ells reported foot traffic at the chain had dropped by 20%.

Chipotle’s effort to regain the trust of the public continues to be an uphill battle. The burrito chain once led the pack of new sustainable fast-casual restaurants. But since it first opened in 1993, Chipotle’s executives have watched as countless other chains have opened and multiplied, crowding an increasingly competitive space. That reality was emphasized in June, when a poll found Chipotle had fallen behind Baja Fresh, Moe’s Southwest Grill, Qdoba and even fast-food joint Taco Bell.

Bad news continued to dog the chain at the beginning of July, when one of its top-level executives, chief marketing and development officer Mark Crumpacker, was charged in New York City for allegedly purchasing cocaine on several occasions. Crumpacker has since been placed on administrative leave.

Company officials said they have beefed up their food safety system, and are finishing up implementing a new chain-wide food barcode system that will allow food to be quickly traced back to suppliers. Chipotle is also depending on marketing and promotions to draw people back into its restaurants. The chain announced the launch of a “Chiptopia Summer Rewards” program that rewards people with free food the more purchases they make.

Company executives said since the launch of that program, 3.6 million people have signed up to participate, and 30% of sales have been made with Chiptopia cards.

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