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Customer Service Hampering Chipotle Comeback Efforts

Published on .

Credit: iStock

Chipotle Mexican Grill, the burrito chain struck by a food-safety crisis last year, suffered its worst stock decline in six weeks after warning that deteriorating customer service is hampering comeback efforts.

As the company works to bounce back from a widespread E. coli outbreak, it has lost its focus on the customer experience, co-Chief Executive Officer Steve Ells said on Tuesday. That's slowed down lines at its restaurants and undermined one of its former strengths.

"I'm not satisfied with the rate of recovery," Mr. Ells said during a Barclays investment conference in New York. "I'm particularly not satisfied with the quality of experience in some of our restaurants."

The stock fell as much as 7.8% to $365.33 in New York trading after Mr. Ells made the comments. That marked the biggest intraday decline since Oct. 26. Even before the dip, Chipotle shares were down 17% this year.

Chipotle's same-store sales -- a closely watched measure -- dropped 21.9% last quarter, worse than the 18.7% decrease projected by analysts. The chain's woes began late last year, when a series of foodborne-illness outbreaks scared away customers.

The company has tried to get diners back by spending more on marketing and ads, establishing different food-safety protocols and introducing a loyalty program. But it's been a slower rebound than expected, Mr. Ells said on Tuesday.

Chipotle hit an "inflection point" in July, when it began gaining more customers than it was losing, Mr. Ells said. Trust in the brand also has have returned to near pre-crisis levels, he said. But slow customer service threatens to turn off customers if they come back to restaurants and they aren't perfect, according to Mr. Ells.

The company also said it's imposing a hiring freeze as it works to recover.

"2016 has been the most challenging year in our history," Mr. Ells said. "We obviously have a long way to go."

--Bloomberg

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