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  • Jamie O'Donoghue

Guacamole-Coaster: The Fall and Rise of Chipotle Mexican Grill

After falling more than 65% from its all-time highs, shares of Chipotle are now up more than 200%. What triggered this impressive turnaround?

Last week, Chipotle Mexican Grill (NYSE: CMG) posted another round of impressive quarterly financial results. With strong earnings and revenue, not to mention same-store sales growth of 10%, the company beat analysts’ expectations across all important metrics.

One of the more interesting aspects of the report was the surge in digital sales growth for Chipotle, which shot up 99% in the quarter. This accounted for more than 18% of total sales. Much of that success lies in the company’s loyalty program, which was launched in March of this year and now has five million members, a jump of more than two million compared with last quarter.

Chipotle was founded as a single-location burrito joint in 1993 by entrepreneur Steve Ells. Ells calculated that the store would need to sell just over 100 burritos a day in order to turn a profit. To his surprise, Ells was selling over 1,000 burritos per day within a month of opening, allowing him the capital necessary to expand to other locations. Between 1998 and 2005, partly thanks to a minority investment from McDonald’s, the company saw its number of outlets soar from 16 to more than 500.

Nowadays, Chipotle is a hugely popular fast food brand with more than 2,500 restaurants across the globe and about 65,000 employees. It has inspired highly-publicized binge-eating contests, a Netflix documentary, and even prompted one journalist to divide America’s population between Taco Bell customers and Chipotle customers.

It isn’t long ago, however, that the company was near-fatally associated with a series of food safety scandals, including a 2015 outbreak of E. coli in its restaurants that sickened hundreds of people, making international headlines for all the wrong reasons.

For obvious reasons, there is nothing quite so reputation-killing for a restaurant as a widespread suspicion that its food is poisonous. What’s worse, the scandal drew an inordinate (and some might say unfair) amount of attention to Chipotle’s safety procedures, which meant that every subsequent health issue was widely reported on, despite such issues being fairly commonplace in the industry. By comparison, McDonald’s recently recalled food items at as many as 3,000 of its outlets following an outbreak of cyclosporiasis tied to its salads, but received nothing like the same amount of condemnation.

So how did the company get from there to here? If Chipotle’s recovery can be attributed to one person, then that person is Brian Niccol, who left Taco Bell last May to become the new Chief Executive of the burrito chain. Under Niccol’s leadership, Chipotle has already expanded its menu and launched a delivery option, and has also enlisted the services of a third-party food-safety monitor to ensure full compliance.

By focusing on the digital aspects of its business, as well as bringing delivery options to almost all of its locations, Niccol has overseen a remarkable reversal in the brand’s public esteem. Indeed, Chipotle featured on Millward Brown’s prestigious list of top U.S. brands this year. Admittedly, it came in at exactly 100th place, but as Niccol would surely tell you, that’s better than no place at all.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Chipotle Mexican Grill. Read our full disclosure policy here.

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