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‘Grainy’ queso threatens Chipotle recovery

Blog: Ackman comes to the chain’s defense after bad reviews hound long-awaited introduction

This post is part of the On the Margin blog.

I took my two boys to Chipotle Mexican Grill Inc. one day last week and made them try the queso. I thought it was good. My eldest boy liked it. My youngest did not. I called the reviews “mixed.”

It turns out, my family unit was more positive than most. Social media reviews have widely panned the cheesy dip. This tweet is fairly representative:

Some reviews we’ve seen called the queso “grainy.” Others called it “underwhelming.”

Earlier this week, an analyst picked up on these negative reviews, and that sent Chipotle’s stock down below $300, to its 52-week low, at one point. 

The stock has rebounded since, in part from a vigorous defense from one of the Denver-based company’s largest shareholders, Bill Ackman.

“I’m beginning to believe that Twitter is filled with a bunch of Chipotle short-sellers,” Ackman, CEO of the hedge fund Pershing Square, said on CNBC.

“People like it in the office,” he added.

Ackman is right that Twitter is filled with Chipotle short-sellers. But it’s also filled with people who eagerly tried the queso and who did not like it. And for Chipotle, that’s a problem.

The company’s unit volumes fell 23 percent in 2016 after a series of foodborne illness outbreaks. After a rebound in the first three months of 2017 those same-store sales have slowed, and many fear they’ve turned negative in the third quarter after a norovirus outbreak in Virginia. 

Chipotle has banked heavily on queso as the centerpiece of its strategy to get customers excited about the chain again. Consumers have long requested queso, and the company has long resisted, finally relenting as it sought to get back into customers’ good graces.

The company even ditched the new ingredient it added in 2016, chorizo, to make way for the dip. 

The company tested queso in New York, expanded it to California and Colorado, and quickly expanded that test nationally. Such negative reviews were not frequently heard, however, during the testing phase.

Yet those negative reviews threaten to take away from the buzz Chipotle hoped to get from the menu addition — while harming the quality reputation the chain has worked so hard to develop. That could dampen sales and extend what has already been an unusually long sales recovery for the Denver-based burrito chain.

And Chipotle is hardly without competition. Its two biggest competitors, Qdoba Mexican Eats and Moe’s Southwest Grill, both have queso — Moe’s gave some away on Thursday — while Del Taco introduced its own version.

That said, some analysts believe queso isn’t the only potential driver. Stephen Anderson, analyst with Maxim Group, maintained his Buy rating on Chipotle’s stock Thursday. He said that the introduction of queso was off to a “respectable start,” but he also cited the chain’s increase in technology-driven sales and improved off-premise sales.

And, indeed, when we went to our local Chipotle the line nearly extended to the front door about 40 feet from the counter — a length we haven’t seen at that particular location since, well, 2015.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company. 

Contact Jonathan Maze at [email protected]

Follow him on Twitter at @jonathanmaze

TAGS: Finance
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