Chipotle desperately needs to make 3 changes to survive

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Hollis Johnson

    Chipotle’s shares plummeted after a disappointing quarter. UBS laid out a game plan that the chain needs to execute. Initiatives include growing delivery, improving guest experience, and adding new menu items – which could include breakfast.

Chipotle’s shares fell nearly 12% – nearing a five-year low – after missing expectations on Tuesday.

The company’s revenue reached $1.13 billion in the quarter, falling short of the $1.14 billion estimate. Now, the fast-casual chain needs to make some major changes if it wants to survive.

In a note that called Chipotle’s ongoing sales trends “sluggish,” UBS analyst Dennis Geiger laid out exactly how the fast-casual chain hopes to survive.

Here are three key things that Chipotle needs to execute if it wants to turn business around:


Adding new menu items

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Hollis Johnson

“Unlike nearly every other fast-food company, Chipotle rarely adds new items,” CEO Steve Ells said Tuesday.

However, he said that this was changing. With the new test kitchen in Manhattan, Chipotle has been semi-publicly testing items including frozen margaritas, new salad dressings, and – prior to its national launch – queso.

Ells and other executives hinted that queso may just be the beginning of new menu innovation, even mentioning new “day parts” – which likely means a breakfast menu test is on the horizon.

UBS supports the new approach to menu innovation, with Geiger writing that it is a “shift in philosophy that we’re in favor of to avoid menu fatigue, but execution is critical.”


Improving customer experience

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Chipotle/Facebook

Improving guest experience has been one of Chipotle’s major focuses as the company attempts a turnaround.

Last December, Ells said he’d give roughly half of Chipotle’s roughly 2,100 locations a C grade for service because of flaws like messy soda stations, dirty tables, and slow-moving lines. In January, Chipotle announced it was retooling its training program.


Investing in digital and catering

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REUTERS/Lucy Nicholson

Digital, delivery, and catering all provide a new chance for Chipotle to boost sales.

Chipotle delivery sales increased 33% in the last quarter, and catering grew 14%. Digital orders also exploded, growing 51% since the chain implemented “Smarter Pickup Times” earlier this year.