Loyalty programs didn’t work, free burritos didn’t work, but maybe keeping customers informed about food safety procedures will. That’s Chipotle Mexican Grill, Inc.’s (NYSE:CMG) thinking this week as the Mexican fast food restaurant rolls out a new ad campaign highlighting the reformed Chipotle health policy. The question is: Can this save Chipotle stock?
CMG has suffered over the last year after several food borne illness outbreaks scared off customers and caused a marked decline in sales.
Despite the company’s efforts to ramp up store traffic and overcome the E.coli and salmonella scares, Chipotle stock is still down 45% from September 2015. However, the company’s latest ad campaign could be the missing link to CMG’s recovery plan.
CMG’s New Plan
On Wednesday, Chipotle rolled out a series of print and digital ads that highlight the firm’s commitment to food safety. CMG has completely overhauled the way its restaurants handle ingredients and it wants customers to know about the new techniques. The firm is washing and rewashing vegetables before and after chopping, meat is being cooked in vacuum-sealed plastic bags in low-temperature water and managers are all required to undergo special training on food-handling techniques.
Many analysts pointed out that such changes are important to ensure that the chain doesn’t have another outbreak, but that they are unlikely to improve Chipotle’s image unless customers know about them. The new marketing campaign is doing just that, though full disclosure of the firm’s food safety techniques could take away from the CMG’s image of using only fresh ingredients.
Customers have already complained that toppings like lettuce and bell peppers were less fresh when they were chopped in central kitchens rather than in store, and although CMG has reverted back to allowing individual restaurants to chop their own lettuce, other toppings like tomatoes are still cut and washed in central kitchens to keep the risk of contamination down.
The firm also uses hot, antibacterial or acidic liquids in order to wash its produce and while this doesn’t alter the taste of the food, knowing that a tomato has been doused in some kind of antibacterial fluid takes away from the fact that it was locally sourced. And while cooking meat in vacuum-sealed bags is a widely used French cooking method, it doesn’t have the same appeal as seeing steak sizzling on a hot grill.
Bottom Line on Chipotle Stock
It remains to be seen whether Chipotle’s efforts to reposition itself as one of the safest places to eat will bring back jaded customers, but the effects of the food borne illness outbreaks are unlikely to last forever. Most food service firms have had some kind of contamination scandal, and good marketing coupled with careful food handling techniques to ensure another outbreak doesn’t occur is usually enough to turn things around.
Chipotle stock may struggle with depressed sales for a few more quarters, but as long as there are no further contamination risks, the burrito restaurant is likely to overcome last year’s troubles.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
