Chipotle Mexican Grill Inc. (CMG) plans to shut down underperforming restaurants and introduce new digital, marketing and menu changes as part of its turnaround strategy under its new chief executive, Brian Niccol.
In a press release, the restaurant chain announced that it will close 55 to 65 underperforming locations, roll out new menu items, revamp its marketing communications and launch a loyalty program in 2019.
"All our efforts will focus on making the brand more engaging, visible, and culturally relevant while our restaurant teams are dedicated to providing an excellent guest experience with great hospitality and real food cooked to perfection,” said CEO Niccol. “Specifically, this will include three big initiatives – revamping our marketing communications and plans, leveraging our second make line to grow digital sales and expand access, and engaging with our customers by launching a new loyalty program in 2019.”
Chipotle added that its restructuring program is expected to cost between $115 million and $135 million to implement.
Lack of Clarity Irks Investors
On a call with investors on Wednesday, reported on by Reuters, Chipotle executives refrained from providing further details about the company’s turnaround strategy. Executives reportedly brushed aside questions about international plans, preferring instead to talk about their “aggressive growth” strategy in the United States, and refused to confirm whether fast-casual dining menu items such as quesadillas and nachos would be added to the new menu.
Chipotle was also vague about how it plans to innovate its business model, improve its digital service and reward shareholders. This lack of clarity did not sit too well with investors, who reacted by sending the shares down 3.1 percent to $443 in after-hours trading.
“There are some key areas they really did not address, notably international strategy,” Maxim Group analyst Stephen Anderson said, according to Reuters. “Also capital allocation, particularly in regard to share buybacks and potential discussion for a dividend. I still think it will happen but it is probably going to be about a year or two away.”
Chipotle’s share price has risen more than 80 percent since Niccol’s hiring was first announced in February. The former chief of Yum Brands Inc.’s (YUM) Taco Bell is viewed by Wall Street as the right person to modernize the Mexican restaurant chain’s business and salvage its tarnished reputation. (See also: Why Chipotle's Hot Stock May Plunge Short Term.)
Chipotle has struggled since foodborne illnesses were linked to its restaurants in 2015. (See also: Chipotle: Rise, Fall and Revival of a Wall Street Darling.)