For the first time ever, Chipotle Mexican Grill (NYSE:CMG) will get a new CEO. Brian Niccol, Taco Bell's former chief, is stepping in to guide the struggling burrito chain, which has yet to fully recover from the 2015 E. coli outbreak. Niccol has big shoes to fill. Founder and outgoing CEO Steve Ells essentially pioneered the fast-casual industry, spawning a legion of imitators that wanted a piece of the one-time market darling's success.
However, the Chipotle of today is much different from the one in the pre-crisis days, as customers have been reluctant to come back despite efforts such as its queso launch and a one-time loyalty program. Investors are already counting on Niccol to revive the struggling brand; in fact, the stock has jumped since he was named as the new chief. He will have plenty of decisions to make to turn the company around. Analysts have suggested launching breakfast, adding new menu items, and improving operations, but if Niccol wants to have an immediate impact, here are three simple steps he can take to lift customer traffic and sales.
1. Lower prices on guacamole
There's nothing that bothers Chipotle fans more than the chain's steep prices for guacamole. Sure, avocados are expensive, but a side of guac at the burrito chain can cost as much as $2.45, while its competitors charge much less than that. Rival Qdoba stopped charging for guacamole in 2014, and at Moe's, the avocado is just $1.19.
Dos Toros, a small burrito chain in New York, subsidizes the costs of its guacamole to give its customers a break. Niccol would be wise to follow the lead of his competitors. Lowering the price of guacamole to cost would help spark goodwill among customers, leading to the kind of positive buzz and word-of-mouth marketing the company needs. It would drive also more traffic to stores and help end complaints like this:
Guacamole at Chipotle went from 1.95 to 2.10. This is beginning to get out of hand.— Eric (@ImEricLuna) March 2, 2018
Taking all of Chipotle's napkins is my own personal vendetta against the extra charge for guacamole.— Gabriela (@Hooooligans) February 19, 2018
2. Limited-time offers
There's a reason limited-time offers are a staple of the restaurant industry -- they work. Chain restaurants from fast food to casual dining rely on so-called LTOs to drive traffic, since scarcity, or the limited-time element, is a tried-and-true way of creating demand. It's the same reason happy hours work.
With a menu that's been essentially the same since 1993, Chipotle likes to consider itself above the fray of traditional fast food, but LTOs aren't just for the dollar menu. Shake Shack (NYSE:SHAK) uses the marketing tactic with tasty items like chili and hot chicken, and Starbucks (NASDAQ:SBUX) has also made a nice living with seasonal LTOs such as the pumpkin spice latte, the gingerbread latte, and the unicorn latte.
Limited-time offers aren't just a good way to bring in customers; they're also a form of testing a new menu items. Chipotle could easily run LTOs for items like nachos or quesadillas, or it could test out a new protein for its burritos and bowls. For example, chorizo, which only lasted a year on the menu, probably would have worked much better as a limited-time offer.
In part because of its lack of LTOs, Chipotle has struggled with "menu fatigue," or the idea that customers are simply bored with its options, especially since there are so many more fast-casual competitors these days.
With Niccol's experience at Taco Bell launching products like the Doritos Locos Taco, don't be surprised if he turns to LTOs to excite customers and bring them back in the door.
Chipotle has one of the weakest beverage lineups in the entire restaurant industry. For 25 years, the burrito chain has offered little more than a lame mix of Coca-Cola soda fountain drinks, as well as beer and margaritas for those searching for booze. Most traditional fast-food chains sell milkshakes, and plenty of others have signature drinks such as lemonade, iced tea, or something else homemade. This is the kind of low-hanging fruit that Niccol could easily take advantage of in a segment that seems forgotten.
As a professional chef, founder Ells seems to have little interest in that side of the business, which is a mistake, since beverages traditionally provide higher margins than food. The decision to stick with Coke products even as the company has pushed its brand further toward "Food With Integrity" by eliminating GMOs also seems like a mistake from a branding perspective, since Coke products are full of GMOs and high-fructose corn syrup.
Chipotle experimented with a "Beverages With Integrity" program at a single Denver location in 2016, testing boozy drinks such as mezcal margaritas, sangrias, and draft beer, and non-alcoholic beverages such as traditional Mexican hibiscus and watermelon "aguas," along with new sodas. That test apparently never made it out of the lab, but it was a step in the right direction.
Another easy move would be to offer a happy hour to draw in customers during slow late afternoon hours. Such a deal would go great with nachos, quesadillas, or another shareable limited-time offer, especially at its locations with outdoor patios. Chipotle isn't a bar, of course, but the company has to get creative and break its traditional rules, as it's clear the old formula is no longer working.
With his background at Taco Bell, Niccol has the tools and experience to execute changes like these. I, for one, would love to grab some nachos and a half-price beer after work someday soon at a nearby Chipotle.
Jeremy Bowman owns shares of Chipotle Mexican Grill, Shake Shack, and Starbucks. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool is short shares of Shake Shack. The Motley Fool has a disclosure policy.