Shares of fast-casual pioneer Chipotle Mexican Grill (NYSE:CMG) are still struggling to recover after a norovirus outbreak in one of its restaurants brought back memories of the disastrous food-safety crisis of 2015. The stock has shed about 38% of its value since peaking a few months ago, hitting levels not seen since 2013.
Chipotle expects this year to mark the beginning of its comeback, with the company's outlook calling for comparable sales growth in the high single-digits. After comps tumbled 20% in 2016, the restaurant chain needs to put up strong numbers for the next few years to claw back those lost sales. The bottom line may be slower to recover, with Chipotle ramping up its marketing spending in an effort to win back customers.
Chipotle hasn't historically relied on the kind of frequent menu additions that are common practice in the fast-food industry, instead driving growth through customer loyalty. With that loyalty upended by a never-ending string of food-safety issues, the company is starting to look to its menu to goose sales. The most hyped-up new menu item, and one that's expected by some to have a major positive impact on the company's results, is queso. The gooey cheese sauce is a staple at Tex-Mex restaurants and other Chipotle-like chains, and now Chipotle is finally jumping on the bandwagon.
After testing its queso at a few hundred restaurants, Chipotle is rolling it out nationally on Sept. 12. Some analysts from Credit Suisse estimate that 25% of customers will opt for the new cheese dip, boosting Chipotle's sales by a meaningful amount. But this analysis ignores one key factor -- the reason queso probably won't save Chipotle.
It's not real queso, and it's not very good
What makes queso queso is its smooth, creamy texture. That texture is achieved by using some sort of processed cheese. Chipotle, shunning ingredients that aren't all-natural, has made its queso without that key ingredient. The result is a product that fits in with the company's mission, made with cheddar and a variety of other natural ingredients.
In Chipotle's own words:
Unlike typical quesos, ours doesn't contain industrial additives like gums and artificial stabilizers (stabi‑what now?). Starting with a base of real melted cheese, its rich, complex flavor comes from the combination of simple ingredients you're likely to recognize.
That all sounds great. Colorado was one of Chipotle's test markets, which allowed me to try out this all-natural queso. The taste was fine, although a bit bland, but a gritty texture was overwhelmingly unpleasant. Mix real queso with grains of sand, and you approximate what Chipotle has created.
The queso roll-out may boost sales in the short term as people try it out, but it's hard to see this permanently boosting the average check size. To be fair, Chipotle has iterated on its queso throughout the trial period, tweaking the recipe and ingredient proportions to arrive at what will be available nationwide next week. But the queso I tried required a complete revamp, not some minor tweaks.
I expect Chipotle to continue to add things to its menu in order to drive its comeback. New beverages could help, and sales could get a major boost if the company ever decides to roll out a breakfast menu. Chipotle will reportedly test out a drive-thru at one of its restaurants this fall, a move that would make adding a breakfast menu more likely to succeed.
There are plenty of things that Chipotle can do to drive its sales higher. Launching a sad excuse for queso is not one of them.