Chipotle's customers have 'menu fatigue,' and it's a huge crisis for the company
Chipotle is facing a new problem that has nothing to do with E. coli.
Customers are growing tired of the menu, and there are plenty of other competitors now offering fresh, customized fast food similar to Chipotle, according to Deutsche Bank analysts.
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"We believe [Chipotle's] success made them a bit complacent (although not with its desire to expand its store base or improve in-store operations) as the company's lack of interest in innovation over the last decade has resulted in what we consider to be menu fatigue," analysts Karen Short and Brett Levy wrote in a note Tuesday.
The "menu fatigue" strikes at the heart of Chipotle's core business strategy.
Chipotle has deliberately left its menu virtually unchanged since it was founded more than two decades ago. The only major change in the menu in the past 23 years has been the addition of tofu sofritas in 2014.
The company prides itself on the simplicity of its menu and boasts that customers can create thousands of combinations from the ingredients they offer.
Chipotle restaurants serve only a few things: burritos, burrito bowls, tacos and salads," the company wrote in its 2014 annual report. "But because customers can choose from four different meats or tofu, two types of beans and a variety of extras such as salsas, guacamole, cheese and lettuce, there's enough variety to extend our menu to provide countless choices."
That's not enough to keep customers coming back anymore, according to the Deutsche analysts, who downgraded the company on Tuesday to "sell" from "hold."
They noted that same-store sales trends, or sales at stores open at least a year, were already showing signs of weakness before the E. coli outbreaks that sickened more than 50 people in 14 states.
Chipotle shares plunged more than 7% in early-morning trading on Tuesday.
We asked the company to comment.
The analysts said Chipotle needs to ramp up its consumer research to find out how customer tastes are changing.
"The company dramatically trails its peers in the world of data analytics," the analysts write. "Without the high levels of insight many of its competitors already have, we question how easily, how effectively or at what cost [Chipotle] will be able to locate and recapture its lost customers."