Chipotle shifts marketing approach, reports 8% comps increase

July 22, 2012 | by Valerie Killifer

Chipotle Mexican Grill's second-quarter earnings reflected an 8 percent increase in same-store sales. Meanwhile, overall revenue for the quarter increased 20.9 percent for the chain, to $690.9 million, driven by new restaurant openings and the comps increase.

During the company's earnings call July 19, chief financial officer John Hartung said the same-store sales increase was the result of higher menu prices and an increase in customer traffic. Year-to-date, the company has experienced a 10 percent increase in same-store sales and a 23 percent increase in revenue, to $1.3 billion.

Hartung said that while the company's Q2 earnings demonstrates financial success, same-store sales slowed in late April and continued at a lower comp level in May and June.

"Sales trends slowed during the second quarter, we believe, as a result of a general slowing of the economy and reduced consumer spending," Hartung said.

The menu price increases contributed 4.6 percent and 4.7 percent to second-quarter and year-to-date comps results.

Expansion plans and new marketing push

In the second quarter, Chipotle opened 55 new restaurant locations. Year-to-date, the company has opened 87 locations.

Of those locations, the company opened its first in Paris during the second quarter and a third unit in London. Two more London openings are expected by the end of the year.

"Now our restaurants in Europe represent a good growth opportunity for us in the future with our near-term efforts directed at establishing the Chipotle brand, building networks of like-minded suppliers and developing the future leaders from within the ranks of our crews ...," said Chipotle founder Steve Ells.

While the brand continues to eye expansion, it has shifted its marketing approach.

Ells said the company is developing new creative concepts to follow up its Back to Basics short film that aired during the Super Bowl. Additionally, the company has redesigned its local marketing program.

"In the past, we focused on individual restaurants, but we've changed that focus to local markets with dedicated marketing strategists now managing 24 of our best markets," Ells said. "While sharing our story with customers has always been effective for us, we believe this shift to implementing national programs in local markets will make our message more cohesive and help us better establish the Chipotle brand."

The company's direct mail piece includes two special offers, a buy-one-get-one-free and free chips and guacamole. Ells said the promotional offer has proven effective at driving trial and has had high redemption rates.

"So we plan to continue our direct marketing efforts in the coming months," he said. 

The company also is producing two Cultivate Food, Ideas & Music Festivals. Cultivate Chicago will be held Sept. 15 in Lincoln Park, and Cultivate Denver is slated for Oct. 6 in the Meadow at City Park.

The free, one-day festivals will include cooking demonstrations by celebrity chefs, live music, food artisans and other activities emphasizing fresh, affordable food made with sustainable ingredients.

"These programs, along with a variety of others, are all designed to engage with our customers in conversations and create an emotional connection that will last much longer than any limited time offer possibly could," Ells said. "I think this is absolutely the right direction for our marketing and believe it's very consistent with our brand. We've built Chipotle in a way that is different than traditional fast food, so it should be no surprise that the marketing that works best for us does not follow the traditional fast food model."

SEC investigation

During the company's Q2 earnings call, co-CEO Monty Moran told industry analysts that the Justice Department and Securities and Exchange Commission are still investigating the chain's hiring and employee authorization practices, as well as the company's reporting of those practices.

"In this regard, we continue to cooperate with the government's ongoing investigations and requests for information," he said.

He also said there is a new U.S. attorney leading the investigation, which means it still has "quite a ways to go."

Read more on operations management.

Topics: Business Strategy and Profitability , Fresh Mex , Operations Management

Valerie Killifer / As the founder of P-O-P Content & Communications, Valerie Killifer brings her passion for creative thinking and relationship development to the forefront of her business. She spent 15 years as a professional journalist and continues to write about the brands, people and trends impacting the restaurant industry.
www View Valerie Killifer's profile on LinkedIn

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