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3 Things Chipotle Must Do Now to Shorten Its Long Turnaround

By Rick Munarriz – Apr 1, 2018 at 9:00AM

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The struggling burrito roller's stock has bounced back since bottoming out last month, and there are some things the company can do to keep its turnaround and momentum going.

There's been some spring in Chipotle Mexican Grill's (CMG -2.08%) step in recent weeks. The stock has soared 30.5% since bottoming out in early February, but it would still have to more than double to get back to its all-time highs.

The road back hasn't easy, and on Monday we saw UBS analyst Dennis Geiger confirm his bearish diagnosis on the stock. He thinks the chain's brand perception remains weak outside its core diehard customers. He points out that recent moves to turn sentiment around have failed to gain traction. He's sticking to his $275 price target on the shares. 

Chipotle's been showing some signs of stabilizing in terms of its restaurant-level performance, and the market reaction was generally positive when the company named a new CEO in February. The fast-casual pioneer is taking baby steps in its recovery effort. Let's go over some of the things it can do to pick up the pace and win back Wall Street's confidence for good. 

Interior of a Chipotle in California.

Image source: Chipotle Mexican Grill.

1. Roll out a better Chiptopia

If Geiger is right that Chipotle only clicks with its biggest fans, then it needs to do something about that. It's been two summers since the out-of-favor burrito roller introduced Chiptopia, a three-month loyalty rewards program that rewarded frequent visitors with bonus food items. Chipotle was telling analysts at the time that a permanent rewards program was in the works, but it failed to materialize.  

Chipotle needs a legit loyalty rewards program. It issued millions of throwaway Chiptopia cards in the summer of 2016, and it's since been growing its database of customer mobile numbers through one-off promotions. It needs to keep its cult base close in a time when the competition for fast casual is intensifying across various food specialties. 

2. Expand Pizzeria Locale

I don't want to accuse Chipotle of siblicide, but after nixing sister concepts TastyMade this year and ShopHouse last year, is there really a better word to describe its actions? Chipotle is down to its namesake chain and Pizzeria Locale, and it's been slow at building out Pizzeria Locale. 

One thing we can say is that Pizzeria Locale is in the right place at the right time. The fast-casual pizza niche is booming, as chains with made-to-order gourmet pies and quick-bake ovens are popping up everywhere. If you don't know Blaze, MOD, or Pieology, you probably will in the next year or two, as the chains have all expanded into the triple digits. Pizzeria Locale should be on that bandwagon. 

Growing Pizzeria Locale would help get the market excited about a potential difference maker, and it would also ease the sting the next time Chipotle stumbles.  

3. Pick up the pace on limited-time offers

As Jeremy Bowman suggested several weeks ago, limited-time offers work. There's a reason the McRib, pumpkin spice latte, and even Unicorn Frappuccino rollouts result in a spike in traffic -- it's because customers are suckers for novelty items that are either seasonal or one-time offerings. 

Chipotle has refused to play this game. It is slow and deliberate with its new product introductions, and when they do happen they are intended to be permanent additions. If Chipotle's track record on that front was impressive or if restaurant-level sales were at peak 2015 levels, the strategy wouldn't be a problem, but this is a company that's been striking out with recent rollouts of chorizo and queso. Chipotle needs to pick up the pace, taking more swings to see if it can finally hit one out of the park.

The good news is it just poached Taco Bell's head to be its new CEO. If there's any company that knows how to spin the novelty wheel, it's Taco Bell, and for every Black Jack Taco or Waffle Taco that flops, we get a Doritos Locos Taco or Quesarito that sticks around. Brian Niccol as CEO should increase the pace of rollouts, and in the process he could fix queso with a seasonal tweak and keep guests coming back more often to see what the chain has up its sleeve. 

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

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