Following a second quarter in which same-store sales rose 8 percent and revenue increased 17 percent, Chipotle is still seeking ways to gain new customers and recover lapsed ones amid the effect of both past and present food safety scares.
More than 130 customers reported falling ill from norovirus-like symptoms at a location in Sterling, Virginia, last week, and a cellphone video showing rodents falling from a Dallas location may have an impact on customer sentiment and Q3 earnings as the brand continues to recover from damages due to to E. coli and norovirus outbreaks in late 2015.
But, aside from addressing its food safety protocols within restaurants, the fast-casual company is turning to its menu to attract guests and planning to offer one item that many have always asked for: queso.
“Queso is something that could attract new customers, could attract lapsed customers, could increase frequency of existing customers, and then also have the ability to increase check average,” said Mark Crumpacker, Chipotle’s chief marketing and development officer, in a conference call. “It hits on all four, whereas, if you look at a dessert, it's unlikely that you're going to get somebody who's a competitor's customer to come to Chipotle because of that, whereas we know that one of the main reasons why people reject Chipotle is that we don't have queso.”
Chipotle began serving queso in its newly opened Next test kitchen in New York City alongside frozen margaritas, new salad greens served with an avocado citrus dressing, and buñuelos, a crispy cinnamon dessert with a Chipotle infused chocolate dipping sauce. The brand plans to roll out the cheese dip to more than 350 restaurants in California and Colorado on August 1. Following that market test, queso could become a nationwide menu item by mid-September.
“The main reason we rejected queso in the earlier days is because we couldn't come up with a recipe that didn't have a bunch of the kinds of ingredients that we don't want to serve, the kinds of ingredients that are really part of processed food,” Chipotle CEO Steve Ells said in a conference call. “And so, we came up with a recipe that we like. It's a clean recipe and it's a delicious recipe, and operationally, queso is very, very easy for our teams and for our customers.”
Nearly every Chipotle competitor offers a variation of queso, which executives point to as a lure away from Chipotle. Following the announcement that queso was being offered in the Next Kitchen, Moe’s Southwest Grill offered New York customers a free cup of queso with any purchase and warned of “queso impostors on the loose.”
Analysts and investors have reacted positively to the potential new nationwide menu item. Investment firm Maxim Group recently upgraded Chipotle’s stock from hold to buy on the queso news, with analyst Stephen Anderson adding that the firm believes “[Chipotle’s] queso is differentiated enough to not only be a potential traffic driver in its own right, but also take market share from immediate rivals.”
Crumpacker says queso will be integrated into Chipotle’s marketing plans as a way to refresh new efforts and mediums, such as TV ad spots.
“I do think that the entry into television accomplished what I predicted it would when we did it last year and then in the spring, which was it delivered outsized reach that's very efficient, so it's a great way to reach a lot of people,” he said. “But absent a compelling reason why people should get up and come in, it's going to be reduced in terms of its potential, and we have that now.”