Can free burritos save Chipotle Mexican Grill? After a rash of food-borne illnesses, associated specifically with E. coli and norovirus, scared customers away and tanked its sales, the fast food chain appears to believe free food may be the solution to its problem, but others aren’t so sure.
Chipotle (NYSE:CMG) announced Wednesday its second attempt at rewarding customers with free food upon their return to its beleaguered outlets. It will send out 21 million direct-mail vouchers for free food during the next few weeks, executives said. Those coupons will expire May 15.
The company’s first try at such a promotion, in February, resulted in about 5.3 million people downloading coupons and around 2.5 million redeeming them. The idea behind the free burritos is not to generate revenue per se but to encourage people to return to Chipotle, especially the loyal customers who eat its burritos, salads and tacos at least 25 times a year and account for as much as 20 percent of the chain’s sales.
Chipotle has forecast a quarterly net loss — its first since going public in 2006 — after sales plummeted 26.1 percent in February. That decline was better than the one in January, when sales plunged 36.4 percent.
“Free burritos — turns out it works. It brings people into the restaurants,” Chipotle Chief Financial Officer Jack Hartung said at an industry conference Wednesday, Fortune reported. Comparing February’s 26.1 percent decline in sales with the month’s 9 percent fall in transactions indicates people were indeed taking the company up on its free food offer.
But not everybody is convinced free burritos constitute the solution to the problem at Chipotle, suggesting there is no such thing as a quick fix for the company.
“Chipotle needs months and months of clean bills of health before they put this in their rearview mirror,” Ashley McCown, a crisis communications expert and the president of Solomon McCown & Co., told NBC News.
The multistate outbreaks of infections associated with Chipotle began in Seattle last July. Ultimately, more than 50 people became ill in two separate E. coli events across 10 states, while hundreds of others were sickened by norovirus, a stomach bug, that was linked to employees at locations in California and Massachusetts.
The company appeared to have conquered the problem, until last week, when a worker at an outlet in a Boston suburb was confirmed to have norovirus. The restaurant was briefly closed, and no customers were sickened in the event, which happened just one month after Chipotle held a companywide meeting on food safety to prevent future outbreaks of disease.
“We have to wait to see if management turns on the ‘promotion spigot’ again,” after the Massachusetts incident, ITG Investment Research analyst Joe Fersedi told NBC News.
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If the first two attempts at offering free food to draw in customers don’t work as well as planned, Chipotle is likely to press forward with that strategy anyway, executives indicated. “If we don’t see the number of customers that we would like to see returning to restaurants, we may do more” free offers, said Mark Crumpacker, the company’s chief creative and development officer.