Chipotle, Still Suffering as Sales Slide Again, Sees Hope in Rewards

'Success to Us Is Getting All of the Sales Back,' CFO Says

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A Chipotle Restaurant Sign.
A Chipotle Restaurant Sign. Credit: Chipotle Mexican Grill via Instagram

Chipotle Mexican Grill, still in a slump, is thinking of rolling out a more permanent rewards plan as it tries to woo back diners who have stopped lining up for its burritos and bowls.

The once high-flying fast-casual chain on Thursday reported another dose of weak sales, but said it is encouraged by early results from its loyalty program. While the company said it believes a majority of its most loyal fans have returned, many of them are not buying Chipotle's food as frequently as they used to.

Chipotle also said that Director of Brand Marketing Mark Shambura is overseeing the marketing team now that Mark Crumpacker is on a leave of absence. Mr. Crumpacker, the chain's chief creative and development officer and one of its top executives, was arrested in New York for cocaine possession.

The broader concern for Chipotle, of course, is the continued fallout since reports of E. coli and other food issues began to spread last fall. Sales at its longstanding restaurants fell 23.6% in the second quarter, a steeper decline than the 20.6% drop analysts had anticipated but not as bad as the first quarter's 29.7% plunge.

"Success to us is getting all of the sales back," Chief Financial Officer Jack Hartung said during an afternoon conference call, characterizing the company as frustrated that its recovery isn't further along.

Chipotle on July 1 introduced its first loyalty program, Chiptopia. The program offers enticements such as an order of chips and guacamole for those who register, and chances to get more free food as spending increases each month during the three months it is set to last. Three weeks in, Chipotle is already seeing about 30% of all transactions in its restaurants tied to Chiptopia. More than 3.6 million people are participating in the program, it said.

Chipotle said comparable sales, or the change in sales at locations open at least 13 months, are down about 21% so far in July. Visits to restaurants are down in a mid-teen range so far this month. Even the company's best market is showing declines: Comparable sales are down "just 12%" in Ohio, Mr. Hartung said.

"The best thing that we can do in the near term is to encourage customers to come back into our restaurants and to ensure that our restaurant teams are delivering an extraordinary restaurant experience on each and every customer visit," said Steve Ells, chairman, co-CEO and co-founder.

Chipotle is spending more than ever on marketing and promotions this year. It ran its biggest mobile and direct mail offers, began the Chiptopia program and is promoting "A Love Story," a new animated short film that it hopes reminds people of the warm feelings they once harbored for the restaurant, its food sourcing and its quality.

Mr. Shambura, who joined Chipotle in 2013, was already overseeing brand planning, content programs, digital work, promotions and events, the company said.

Chipotle is working on marketing plans including new content that will focus on how it has worked to become a leader in food safety, promotions aimed at groups such as students and families, holiday promotions and a gift card incentive, Mr. Shambura said.

Research shows sentiment is improving and that millennials have the most favorable opinion of Chipotle, according to Mr. Shambura. "We have a very full slate of marketing programs planned for the remainder of the year that we believe will continue to support our recovery," he said.

Executives said Chipotle will study Chiptopia and use the customer data they are gathering through the program to help come up with longer-term rewards programs.

Other new plans include beginning to sell chorizo, which is expected to be in all restaurants by the end of the year. So far, the blend of pork, chicken and seasoning is accounting for 6% to 7% of entree sales where it is available. One area of concern is that the company expects higher avocado prices during the current quarter to weigh on its food costs. Employee turnover is also up.

Chipotle posted its first quarterly loss as a public company in the first quarter of the year. It managed to turn a profit in the second quarter: it earned 87 cents per share, down from $4.45 per share in the same period a year earlier.

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