Chipotle is facing a crisis that has nothing to do with E. coli
People are getting tired of Chipotle's menu, and that could be an even bigger problem for the company than its recent E. coli crisis.
The burrito chain's sales have plunged following the E. coli scare that affected restaurants in 14 states.
The outbreak was declared over in February, but same-store sales — or sales at stores open at least a year — continue to fall.
Same-store sales dropped 26.1% in February, following a 36.4% decline in the prior month. The company's stock price has lost more than 27% of its value in the last six months.
The declines were so severe that they have made the entire restaurant industry look bad, Jonathan Maze reports for Nation's Restaurant News. Restaurant same-store sales are up just 1.3% this year. Without Chipotle's performance, the average same-store sales uptick would be 1.8%.
But even before the E. coli crisis, Chipotle was showing signs of decline.
The chain's sales growth was contracting for several quarters prior to the outbreak, which emerged in the fourth quarter of 2015.
Same-store sales grew 10.4%, 4.3%, and 2.6% in the first, second, and third quarters of 2015, respectively. By comparison, same-store sales grew 16.8% in 2014.
Analysts have said menu fatigue is to blame for the declines.
"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," Deutsche Bank analysts Karen Short and Brett Levy wrote earlier this year.
The "menu fatigue" strikes at the heart of Chipotle's core business strategy.
Chipotle has 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.
But Chipotle is now recognizing that it needs to change.
Company executives said last month that they are considering adding several new menu items to win back customers, the first of which will likely be chorizo — a spicy pork and chicken blend.
A test of chorizo in Kansas City last year was "very, very popular with our loyal customers," Chipotle co-CEO Monty Moran said on a call with analysts. He said he's hoping that the addition of chorizo will "make our loyal customers come more often."
It remains to be seen whether chorizo or any other items the chain adds will be too little too late, or just the thing it needs to draw back old customers.
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