A poor customer experience — not food-safety concerns — are keeping guests away from Chipotle Mexican Grill, founder and CEO Steve Ells said Monday.
As a result, Ells pledged to return the fast-casual chain to its former greatness by simplifying operations and refocusing on the customer experience.
On Monday, Chipotle Mexican Grill Inc. said co-CEO Monty Moran would immediately step down and relinquish his position on the company’s board of directors. Moran will officially retire in 2017.
In an after-market call Monday with Wall Street analysts, Ells said he was asked by the board to take on sole leadership to speed what has been a frustratingly slow recovery for the company following a series of foodborne illness outbreaks last year that sent the once high-flying brand into a tailspin.
Ells said Chipotle’s slow recovery has been due more to a deteriorating customer experience than fears of foodborne illness.
“I’m not satisfied with the pace of our recovery, and I’m especially not satisfied with the guest experience in many of our restaurants,” he said. “We’ve lost sight of what really matters: Our customers.”
Over the past year, Chipotle has implemented new food-safety protocols to reduce the chance of another crisis. Partly as a result, Ells said Chipotle’s operations have become so burdensome that worker turnover has spiked, and managers and employees have less time to focus on running great restaurants.
Internal surveys indicate three top customer complaints:
- Long lines: This was true before the crisis because of high volumes, but lines are now long due to overburdened staff, rather than high traffic, Ells said.
Chipotle recently rolled out a new online ordering system with more efficient pickup, which aims to speed throughput. The chain is also adding second make lines to kitchens to accommodate digital orders. In the future, Ells said, restaurants may use hand-held tablets to offer “digital drive-thrus.”
- Running out of ingredients: Many restaurants find themselves short on key ingredients like rice or protein options during peak times. This is a training problem, Chipotle said.
“It’s hard to keep up with demand in exactly the right way. But when trained properly, they can do it every time,” said Mark Crumpacker, Chipotle chief marketing and development officer.
- Untidy dining rooms: Overburdened workers are not keeping dining rooms as clean as they once did.
“That’s very easily solvable by focusing our crews on things going on in the dining room as much as things going on in the kitchen and other aspects of their job,” Crumpacker said.
Fundamentally, happy customers are more frequent customers, Ells said. “And frequency is the key to our recovery,” he added.
After a rough first half of the year, with few new customers trying Chipotle for the first time, the second half of 2016 brought in an estimated 33 million new customers, with only 3 percent of those coming as a result of discounts or promotions, Crumpacker said.
Of the 28 million of those documented with credit card data, 36 percent returned a second time during that period, and 50 percent of those returned a third time, resulting in a net conversion rate of 18 percent. Crumpacker said that was higher than the overall industry average conversion rate of about 12 percent to 13 percent.
To free up workers to better focus on capturing returning customers, Ells said he would simplify four aspects of operations:
- The process by which managers move into leadership positions, known as Restaurateurs
- The methods used to evaluate employee performance
These elements dominate the work day for many employees, he said.
“But if you look at what made Chipotle successful, it was doing a few things and doing them well,” Ells said. “Our teams are capable. We just need to get out of their way and allow them to be the great restaurant operators they are.”
Ells did not address Chipotle’s financials on Monday, but at an investor presentation last week, he indicated nervousness about meeting company guidance for high-single-digit same-store sales increases in 2017
Double-digit same-store sales declines have been reported for four consecutive quarters, the most recent a 21.9-percent drop during the Sept. 30-ended third quarter.
But Moran’s departure frees up a board seat, along with compensation expenses.
Moran was Chipotle’s general counsel before joining the company in 2005 and taking the co-CEO role in 2009. Last year, his pay package totaled $13.6 million, a 52-percent decrease from the $28.2 million he received in 2014, largely due to the food-safety crisis.
Wall Street analysts saw Moran’s departure as an expected and necessary step to restore investor confidence.
“While we see some risk that Moran’s exit could have negative cultural implications in the short run, we are confident that a refocused effort to bolster unit-level operations under the leadership of CEO Steve Ells ultimately can prove effective in positioning the brand to recapture lost share,” David Tarantino of Baird Equity Research wrote in a report Monday.
All photos courtesy of Chipotle
Contact Lisa Jennings at [email protected]
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