As if Chipotle Mexican Grill (NYSE:CMG) customers hadn't swallowed enough bad news recently, many were victim of a hoax earlier this week. The satirical website satiratribune.com released an article titled, "Chipotle Selling $1 Burritos This Week To Regain Public Trust" which was reposted elsewhere on the Internet.
The article prompted many burrito fans to ask the company on Twitter if the deal was being offered in their areas.
@takinknapps Sorry, that's not a promotion of ours. -Myra— Chipotle (@ChipotleTweets) January 13, 2016
Of course it's not, but the rumor brings up a valid point. After sickening hundreds of its customers and scaring away thousands, Chipotle owes it to the loyalists to make amends, and there's probably no better way to do it than a deal like dollar burritos.
After all, Chipotle outlets have gone from huge lines during the lunch rush to ghost towns. Comparable sales plummeted 30% in December, and anecdotal evidence indicates sales are severely down thus far in January as well. Cheap burritos would get those folks back in the door, and help them overcome any fear or distaste about eating at Chipotle again.
Faced with an unprecedented crisis, management has struggled at times to find the right tone for dealing with the matter.
After an E. coli outbreak at 11 restaurants in Oregon and Washington in October, the company shut down all 43 stores in the region, reopening them after it received a clean bill of health. However, the crisis reopened when the Centers for Disease Control reported that the outbreak had spread across the country to several more states. The source of the outbreak has not yet been identified, and probably never will be.
At times, Chipotle has been slow to fess up to such food safety scares. A smaller E. coli outbreak this summer, also in the Northwest, was not even reported by authorities, and over the fall Chipotle seemed to blame the CDC's reporting methods before providing its own mea culpa. The event had reached full-fledged PR nightmare status when Founder Steve Ells went on NBC's Today Show to apologize, and explain what the company was doing to ensure its food would be safe. It also posted an apology letter and comprehensive food safety plan in dozens of newspapers nationwide in an attempt to quell the exodus.
An unrelated Norovirus outbreak at a Boston location shortly before the ad ran served to undermine the apology, and after the CDC announced later in December five more E. Coli cases, Chipotle promised to suspend its campaign to bring customers back until the agency had closed the case. Nothing would be worse than to declare the food safe again only to fall victim to another outbreak.
The road to recovery
This is the not the first food safety scare to rock a major restaurant chain, and it won't be the last. Most brands lose sales for the year following an outbreak and then grow following that, eventually recovering to their former levels and higher.
Jack in the Box (NASDAQ:JACK), the West Coast chain that suffered the most famous E. coli outbreak in modern times, infecting over 700 people and killing four children, is thriving today. To bounce back, it brought back its old mascot and launched a marketing campaign that featured the character exploding into the boardroom with the tag line "Jack's back," helping bring customers back in the door. Behind the scenes, Jack in the Box recruited a respected microbiologist to become its vice president of product safety, who developed the HAACP control system that's now standard in restaurants today.
Chipotle has announced several changes on the food safety side, including processing vegetables in a commissary, holding local food suppliers to higher standards, and bringing in outside auditors. The marketing part is still to come, but that will probably be the most important component of a successful recovery strategy.
After all, food safety is boring. Americans don't want to read about a plan to control cross-contamination and other such threats. They just need to be convinced that the food is safe again and invited back into stores. A promotion such as $1 burritos would do just that, giving customers an incentive to return and acting as a form of compensation for Chipotle's bad actions on the food safety front.
The stock got a jolt for the first time in weeks on Wednesday when management said at a conference that they expected the CDC to declare an end to the outbreak in the near future. Once that happens, the company is planning a marketing push through direct mail and other channels to win customers. The chain has also doubled the amount of free food that stores can give away.
For Chipotle and its investors, that push can't come soon enough. The stock plummeted more than 40% since its peak just a few months ago and comparable sales have been rocked. As its Twitter account shows, Chipotle customers are hungry for a deal. Now is not the time to say no.