Chipotle Deliberately Spends Less on Marketing to Afford Higher-Quality Ingredients

Chain Bets on Online and In-Store Marketing, Not TV

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Chipotle: Taste Invaders
Chipotle: Taste Invaders

Chipotle Mexican Grill is stepping up digital and in-store marketing to promote itself, but don't expect TV commercials from the chain, even as its growth slows.

During an earnings conference call, UBS analyst Keith Siegner asked Chief Creative and Development Officer Mark Crumpacker why Chipotle would not put more money into marketing for long-term brand building, particularly as the company has plenty of cash and traffic at its restaurants is slowing.

"I'd say that we actually probably are stepping it up in some regards," Mr. Crumpacker responded, stressing that "we deliberately spend less on our marketing so we can afford these higher-quality ingredients. That's essentially the main marketing benefit to our customers."

Mr. Crumpacker went on to say that Chipotle finds different ways to tell its story. "We have recently shifted our focus more to telling the basic story about where our ingredients come from and how they're made. And we've significantly increased our focus on digital marketing, which we've found to be very effective. We're going to be using some more of our in-store assets to communicate some of these messages, like our packaging."

Still, don't expect Chipotle commercials to start airing on television anytime soon.

"The problem with television, beyond the expense, is that it is really, really tailored toward 30-second spots, which really only deliver if you have some sort of a promotional or call-to-action message in them, which is a very slippery slope," Mr. Crumpacker said. "We're going to stay the course on telling this brand story."

Chipotle promotes its "Food with Integrity" messaging with signs in its stores and in places such as bus shelters. It also uses online elements such as an old-school style video game called Taste Invaders. Earlier this month, it launched a short video and a Halloween costume contest aimed at showing that other chains use ingredients and cooking methods it finds unnecessary.

GSD&M handles media and some creative projects for Chipotle, while CAA focuses primarily on content programs.

Chipotle's third-quarter earnings disappointed Wall Street. The chain, with a name that's nearly synonymous with the high-flying rise of the fast-casual restaurant industry, spent more on labor and marketing during the quarter. It is also opening more new restaurants, which help boost sales. However, sales growth at existing locations is slowing down a bit as the chain matures.

In the third quarter, comparable sales were strongest in July, helped by the launch of the limited-time "Friend or Faux" game and buy-one-get-one deal. Traffic slowed down after that and has been "choppy" so far in October, executives said.

Chipotle said Tuesday it expects low-to-mid single-digit comparable sales growth this year, followed by low-single-digit comparable sales growth in 2016. So far, October sales trends have been choppy, executives said repeatedly on the conference call.

Shares of Chipotle fell about 7.5% to $653.94 in after-hours trading.

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