Can Taco Bell’s former chief restore Chipotle’s once sizzling growth?

0
130

CNBC stock analyst Jim Cramer is excitable naturally, even so the former hedge fund manager was actually frazzled after hearing merely hired as Chipotle Mexican Grill Inc.’s leader. Chipotle — the fast-growing burrito chain that became the anti-Taco Bell with food steeped with fresh ingredients, then was rocked by highly publicized outbreaks of E. coli and various food-borne illnesses in late 2015 — had recruited, coming from all people, Kfc chief Brian Niccol as the next CEO.

Niccol was “by far the most opposite guy you might find” and Chipotle promptly had build “a culture clash,” an exasperated Cramer told viewers when Niccol’s appointment was announced Feb. 13. “It’s like naming someone from the Army to run mid-air Force.”

But others thought Niccol was really a strong choice, determined by his historical past at Kfc, and Wall Street cheered. Chipotle’s battered stock, that had plunged 67 percent looking at the record high reached in mid-2015, soared Fifteen percent on that day amid hopes that Niccol could restore Chipotle’s sales growth and reputation among consumers.

“We’re hard-pressed to get a better fit for Chipotle’s CEO position than Brian Niccol,” Morningstar analyst R.J. Hottovy said in a note to clients. “Under Niccol’s leadership, Kfc continues to be one of several bright spots in U.S. quick-service restaurants.”

Niccol, 44, succeeded Steve Ells, Chipotle’s founder, who remains executive chairman. Niccol has his work cut out.

The food-safety woes besides damaged Chipotle’s reputation, they soiled the “Food with Integrity” narrative that this Denver-based chain and Ells carefully had crafted for two decades to fuel its growth. It was actually branding that portrayed Chipotle for a cut above its rivals with fresh, organic ingredients, strong support services and pleasing in-store furnishings.

Chipotle’s burritos, burrito bowls, tacos and salads found a sweet spot amid Americans’ growing requirement for healthier food. The chain was “in the event the benchmark whereby fast-casual restaurant chains measured themselves,” Hottovy said.

Chipotle rapidly expanded, initially which has a major investment from McDonald’s Corp., which eventually took control of ownership from the chain. McDonald’s then began unwinding its position in 2006 when Chipotle went public at $22 a share. At the beginning of August 2015, the stock hit a peak of $757.77 a share — a 34-fold increase.

Then the food-safety scare hit. Diners stayed away, the stock tumbled and activist investor William Ackman swooped in, amassing a ten percent stake in Chipotle. He secured two seats on its board in late 2016 family pet agreeing to never lift his stake above 12.9 percent as well as to make any disparaging public comments in regards to the company for a couple years.

The chain fundamentally changed the way sources some ingredients, including preparing a variety of it earlier also in central kitchens, away from restaurants. Ells acknowledged at the end of 2016 that because Chipotle’s employees were so concentrated on implementing food-safety modifications in the aftermath of your disease breakouts, its basic customer care — for example cleanliness and also the speed from which customers finish the ordering line — had began to falter at some restaurants.

“Once we invite new or lapsed customers into restaurants that happen to be sub-standard, the world thinks those customers will return more infrequently,” Ells said in an investor conference.

All which often occurred as Chipotle faced increasing competition inside the “fast-casual” sector from your likes of Qdoba Mexican Eats and Panera Bread, and even though overall restaurant sales are sluggish.

“Now we have way too many restaurants,” said Nicole Miller Regan, an analyst while using investment firm Piper Jaffray Cos. Chipotle’s woes “couldn’t have happened at the worst time, frankly,” she said.

Nonetheless, Niccol — who, with Ells, declined comment with this article as he had just begun his tenure — arrived after Chipotle as a minimum had stopped the decline caused by thier food scare.

Chipotle’s same-store sales, or sales at stores open as a minimum annually, rose 6.Four percent during the past year if they plummeted 20.Four percent in 2016. The chain’s revenue rose to $4.5 billion from $3.9 billion in 2016, and profit rose to $176.3 million from $22.9 million, partially because Chipotle kept opening new stores. It had 2,408 locations — including 409 in California — at the start of this year.

But last year’s profit was less than half the $476 million that Chipotle earned in 2015, if this had 300 fewer restaurants. And Chipotle’s stock had dropped to $251 a share before Niccol was hired; it closed Tuesday at $326.80.

The chain remains in good financial health, with no long-term debt and $509 million in cash and equivalents by Dec. 31. Which provides Niccol some flexibility because retools Chipotle’s strategy.

A key challenge for Chipotle is “there’s just not new to speak about” when it comes to its menu or innovation, Hottovy said. “That’s what Niccol is required to manage right off the bat,” he said. “The perception is that often he will start bringing some excitement for the brand that hasn’t had the experience for quite a while.”

In fact, Niccol has built automobile for food service innovation. He worked at Procter & Gamble in brand management — and earned an MBA through the University of Chicago — before joining Yum Brands Inc., which owns Kfc, Pizza Hut and KFC, in 2005.

He eventually rose to general manager for Pizza Hut USA before shifting to Irvine-based Taco Bell in the year 2011 because it is chief marketing and innovation officer. He became Taco Bell’s CEO during early 2015.

Niccol was credited for turning Kfc to a thriving, youthful brand — he changed the company’s slogan from “Think beyond your bun” to “Live mas” — and vastly improved Taco Bell’s online marketing effort, which attracted tech-savvy millennials.

“If you ever permit the brand get old, you will die,” he told the Los Angeles Times in 2015. Chipotle also noted that Niccol also “transformed Wendy’s right social network leader and revolutionized its digital approach through mobile ordering and payment across their 7,000 restaurants.”

During Niccol’s stint, Kfc expanded its menu that include items including Doritos Locos Tacos, the Quesarito and Nacho Fries. “We have been in awe of Taco Bell’s method to menu innovation, marketing creativity and consistent operations,” analyst Miller Regan said inside of a note to clients.

Ells, 51, signaled he expects Niccol to do decisively to increase the chain.

“Brian’s passion and skill-set ideally position him to help make the bold moves necessary to improve operations and consider the company one stage further,” Ells said within a statement when Niccol was hired.

Ells, subsequently, deserves praise for showing he “wasn’t too proud” to locate the best available CEO, even in the competitor, Miller Regan said.

The question might be “how loose will those reins be?” under Ells for Niccol to take care of, she said, adding: “They have to be loose so Brian can do his job.”

———

©2018 Are generally Times

Visit the la Times at www.latimes.com

Distributed by Tribune Content Agency, LLC.

 

LEAVE A REPLY

Please enter your comment!
Please enter your name here