Chipotle mulls more food giveaways as customers slowly return
By Lisa Baertlein
(Reuters) - Chipotle Mexican Grill Inc CMG.N could give away
roughly 9 million burritos as it fights to win back customers
following several food safety mishaps that have dented its sales.
Executives speaking at an investment conference on Wednesday said
the company has recovered about one-third of sales lost to a string
of food safety lapses last year, and more free offers may be
forthcoming as part of its turnaround strategy.
The formerly high-flying burrito chain plans to send 21 million free
food coupons via snail mail to U.S. consumers. Chipotle expects
roughly a quarter of those coupons to be redeemed.
Chipotle closed stores on Feb. 8 for an all-company food safety town
hall meeting and invited diners to text the company to request a
free burrito. Demand for the offer was more than double what the
company expected, as 5.3 million requests were logged. Redemption
rates on the text coupons have been 67 percent, executives said.
Based on a burrito cost of $7.10, the average price of burritos
offered at the chain in Los Angeles restaurants, the value of those
two giveaways would total more than $62 million.
The direct mail and text coupons offer free entrees, and while the
company sells a variety of dishes, Reuters used its popular burritos
for the calculations.
"So free burritos, it turns out, works," Chief Financial Officer
Jack Hartung said at a Bank of America Merrill Lynch investor
conference. "It brings people into the restaurant."
Costs related to Chipotle's recovery efforts are running higher than
expected and prompted the chain on Tuesday to warn that it will post
its first quarterly loss as a public company.
Sales and visits remain down from a year ago, but have come off
their worst levels in January. That said, paid transactions are
still 30 percent lower, executives said.
The Pacific Northwest and the Northeast, which were most affected by
2015's food poisoning outbreaks, have been the slowest to recover.
Free food offers often are most effective with already loyal
customers. Chipotle's "top loyal" customers dine at the chain at
least 25 times a year and account for up to 20 percent of its sales.
Future offers aimed at spurring visits will likely be delivered via
mobile devices and could take the form of buy-one-get-one-free, or
BOGO, said Mark Crumpacker, Chipotle's chief creative and
"As we move into the summer and we do additional promotions, you
probably will see BOGO creep back in," Crumpacker said.
Shares of Chipotle closed down 0.5 percent at $500.35.
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