Chipotle CEO says restaurant service is poor


Chipotle Steve Ells

Chipotle Founder and Co-CEO Steve Ells.

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Chipotle co-CEO Steve Ells said the burrito chain’s customer service is on the decline.

In a surprising admission, Ells said Tuesday that the company internally awards half of its approximately 2,100 restaurants with a “C” rating for service.

He cited flaws like messy soda stations, dirty tables, and slow lines.

“We’ve taken the focus away from customer service,” Ells said, according to the the Wall Street newspaper. He made the remarks during a presentation at a Barclays investor conference on Tuesday.

This is a critical issue for Chipotle, who is trying to extricate himself from a massive slump following an outbreak of E. coli which reduced sales by 30%.

Customers have been slow to return to Chipotle following the outbreak, which began late last year, and now service issues threaten to prolong the recovery even further.

As a result, Chipotle’s management suddenly becomes nervous about meeting the 2017 forecast it released in October, Ells said Tuesday.

Chipotle had said in October that he expected same-store sales growth in single digits next year, so between 6% and 9%.

In the last quarter, Chipotle’s same-store sales fell 21.9%.

Chipotle


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It is only a slight improvement from the second quarter, when same-store sales fell 23.6%, despite the company launching a generous rewards program called Chiptopia that offered free burritos.

Many analysts have said it took a long time for customers to return to Chipotle because they were forced to try new restaurants during the E. coli, and in many cases, they found they liked these restaurants even more than Chipotle.

Others attributed the slow recovery to menu fatigue, saying that even before the outbreak, customers were getting bored of Chipotle’s menu – which has hardly changed over the past two decades.

Chipotle’s sales growth contracted for several quarters before the outbreak, which emerged in the fourth quarter of 2015.

Comparable store sales increased only 2.6% in the third quarter of 2015, a sharp slowdown from 16.8% in 2014.

Now, with the decline in service, it’s hard to say if Chipotle will ever return to the powerhouse it was before, according to Matthew DiFrisco, and analyst for Guggenheim Securities.

“Before, the priority was speed, speed, speed – and now it’s cleanliness and safety,” DiFrisco told CNBC Tuesday. “Those are all good priorities. However, past success – restaurant margins of 26% and $ 2.6 million in volume per store – were all indicative of everyone running with the speed target. It’s gone … and that’s what I think, structurally, will be changed forever. “


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