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Chipotle Mexican Grill says it is looking for a ‘new leader with demonstrated turnaround expertise’ after co-founder Steve Ells said he would step down as chief executive. Jillian Kitchener reports.
Video provided by Reuters
Chipotle Mexican Grill is wrapped up in a burrito dripping with drama — but the new year may give it a fresh start.
The Denver-based chain, once the darling of the chain restaurant business, still finds itself on the defensive as food-safety issues resurface and critics are yet to laud the taste of its trendy melted-cheese product, queso.
Signaling a shift, founder Steve Ells, a Culinary Institute of America alumnus, announced this month that he will step down as CEO. That leaves Chipotle on the precipice of major change in 2018, hoping it can get its mojo back.
Experts say it’ll be a long climb back to the top for a company that, along with others like Panera Bread, popularized the fast-casual restaurants — higher-quality fare than typical fast food that can be served quickly. Chipotle’s stock is now trading 40% lower than it was exactly two years ago.
“They’ve lost the quality edge that they used to have. That should be priority No. 1,” says Andrew Charles, a restaurant equity analyst at Cowen Co., citing the attention Chipotle is paying to delivery, catering and digital ordering instead. “What they’re doing isn’t attacking the core issues that they have.”
A new CEO could be key. Both McDonald’s and Olive Garden owner Darden Restaurants got new CEOs in 2015, and with them, had significant turnarounds. Chipotle has launched a search for a new CEO.
For Chipotle, 2015 was the start of a downward spiral. Dozens of customers in several states were sickened by E. coli bacterial outbreak, a scandal that rocked the brand known for its healthy food offerings.
Reports of food-borne illness plagued the chain again this year: a norovirus outbreak at a Virginia Chipotle in July; rodent sightings in Dallas that same month, and reports of customers falling sick earlier this month in Los Angeles.
“They need someone to help them regain traction,” Charles says. “Chipotle is being run by a chef, not someone who’s had business classes like most CEOs out there.”
Ells declined to be interviewed.
Charles anticipates that the stock, which was close to $496 in late December 2015, could drop as low as $240. Chipotle’s stock fell 60 cents to close at $294.82 on Thursday.
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UBS research analyst Dennis Geiger wants to see Chipotle do more to help itself. His list includes store remodels, new menu items and a breakfast expansion.
One recent misstep was “queso-gate,” Chipotle’s clumsy introduction of the spicy cheese product to its menu. Despite customers demanding it as other chains rolled out their own versions, Chipotle took years to perfect the recipe for a product that could have become a hot seller. The issue? Chipotle’s version had to be free of artificial flavors, colors and preservatives. When queso debuted in September, diners disliked the taste and by December, Chipotle was reformulating it.
“The new CEO’s got to address brand image, menu, marketing,” Geiger says. “All of that is the core of what the focus needs to be. How do they go about doing that? It’s hard.”
Chipotle Mexican Grill stock sank a day after the burrito chain reported disappointing results. Roselle Chen reports.
Video provided by Reuters
Chipotle has to compete against not only its old self, but also new entrants in the restaurant segment it practically invented.
But some on Wall Street believe the chain can come back.
“It’s still the envy of the fast-casual category,” saysNick Setyan, managing director at Wedbush Securities. “If the right person comes in, they will able to save the business in terms of margins and profitability.”
Follow USA TODAY reporter Zlati Meyer on Twitter: @ZlatiMeyer