It looks like Chipotle's free burrito strategy might be working: a survey shows that 41% of respondents who received a free burrito coupon visited Chipotle (NYSE:CMG) 3.8x over the prior 30 days vs 1.4x for the 59% who didn't receive a coupon. Brand perception was also higher in the couponed group. Meanwhile, analysts at Credit Suisse found that Google searches for food-safety issues related to Chipotle have dropped sharply since the beginning of the year.
CMG has managed the burrito program well, remember the Kentucky Grilled Chicken Opra promotion? Free often works, but that is a cost. It is no secret their stock has lost value, (30% in a year):
Earnings report is tomorrow. Let's examine the perception management part of this. According to Profit Confidential:
Chipotle’s food safety issues have weighed heavily on its financials—that much we’ve established. With Chipotle having warned that it expects to announce its first quarterly loss since going public next week, with same-store sales having fallen 26% in February and having stayed down in March, the company is ensuring expectations remain in check. (Source: “Chipotle Is Warning Investors About Seriously Grim News,” Time, March 16, 2016.)
There will be no surprises, they told investors in advance this would be a bad quarter. They have owned up to the food safety issues. They should be able to get back on track. But to continue growing? USA Today reports:
Chipotle Mexican Grill said Wednesday it has applied for a trademark for "Better Burger" as part of a business diversification move to open a burger restaurant chain.
"We have two non-Chipotle growth seeds open now ― ShopHouse and Pizzeria Locale ― and have noted before that the Chipotle model could be applied to a wide variety of foods," said Chris Arnold, a Chipotle spokesman.
ShopHouse, a Southeast Asian food chain, opened in 2013. Last year, Chipotle began expanding Pizzeria Locale, which specializes in wood-fired pizza, beyond its initial locations in Denver and Boulder, Colo.
I have been to a ShopHouse and it didn't really move me. And these are crowded market sectors; the world needs another burger or pizza chain?. From a perception management perspective, investors may well get spooked that they are not focusing on core competence. I will close with a nearly prescient observation from Barons from July 2015.
Chipotle is trying to address the growth issues with brand extensions like a Southeast Asian cuisine start-up, ShopHouse, in Washington; and Pizzeria Locale in Kansas City and Denver. Their food no doubt will be fresh, but they represent more risk than Chipotle’s tried-and-true menu for success.