Chipotle Mexican Grill (CMG) has been suffering ever since late 2015, when an E. Coli outbreak at dozens of its restaurants sickened 55 people in 11 states. The outlook for the fast-casual restaurant became bleaker after a second outbreak infected five more people, and after 80 Boston College students got sick from eating at a single Chipotle.
The bad PR has had a sustained negative effect on both the company’s stock and sales. Chipotle’s same-store sales plummeted nearly 22% in the third quarter of 2016, and the stock has dropped nearly 25% since this time last year.
It will be tough for Chipotle to turn things around in 2017, especially since Moody’s Investors Service is forecasting 2016 as just the start of a restaurant recession.
Indeed, Chipotle’s updated food safety protocols will not be enough to counteract the bad press it’s received and the troubles facing the restaurant industry as a whole. It needs to woo consumers with new menu items while also ensuring they don’t associate Chipotle burrito bowls with diarrhea-inducing bacteria anymore.
“The most important area of focus must be rebuilding consumer confidence and interest in the brand,” Neil Saunders, managing director of Conlumino, a retail research agency, tells Yahoo Finance. “That requires a strong marketing effort and initiatives like menu innovation.”
Granted, Chipotle has already begun making changes to its menus. Chorizo, Chipotle’s newest protein, launched nationally in October and now accounts for 7% of entree sales. Continuing the trend of product innovation, Chipotle is testing two different desserts with the hopes of introducing one into the menu next year.
The company will also broadcast more TV ads to reach new customers. However, Saunders cautioned, “It is unrealistic to expect such efforts to turn the business around immediately. Trust is easily lost and regaining it is a hard and prolonged effort.”
This summer, Chipotle tried to ramp up its number of return customers through Chiptopia, a loyalty program that attracted 6 million members. Chipotle said the temporary program boosted sales in the second quarter. In 2017, the chain may end up using insights from Chiptopia to create a permanent loyalty program, Barclays analyst Jeffrey Bernstein wrote in a research note.
The chain may also get more repeat customers by improving its customer service in 2017. This month, Chipotle CEO Steve Ellis revealed half of its restaurants have subpar customer service. With the restaurant’s focus on increasing food safety measurement, Ellis said, the focus on customers’ experience has decreased. Improving that customer experience will involve training on-the-ground employees to do things like picking up dirty napkins.