Chipotle’s Revised Strategy: Closing Stores and Launching Loyalty

In a special mid-quarter investor call, Chipotle CEO Brian Niccol detailed some of the changes he’s already implemented and what to expect from the chain going forward, including closing 55 to 65 stores, adding a loyalty program, and restructuring the menu to include afternoon happy hours and specific late night offerings.

Niccol assumed the top spot at the company three months ago and has already implemented changes ranging from a change in headquarters (Denver to Southern California) to a menu expansion that includes Mexican chocolate milkshakes and quesadillas. He’s also instituted a renewed focus on the restaurant’s digital strategy, including adding shelves in restaurants for digital orders available for pickup, and integrating delivery options directly into the Chipotle app.

“These shelves unlock the power of our second make line to drive more digital orders and provide a relief valve for our busy customer service line,” Niccol said. Currently, over half of Chipotle’s customers are unaware that they can order meals ahead online or through the brand’s app.

A Not-So-Silent Brand

Chipotle’s success seems to hinge on consumer trust and adoption, driven by renewed attention to marketing and advertising. Niccol previously criticized the restaurant, calling it invisible, and continued to point out where the brand falls short. “There’s a lack of discipline around priorities, process and accountability, and we are not sufficiently results focused, which made us reactive and hampered execution,” Niccol explained. “And as you’ve heard me say before, the brand had been silent and lost some of its cultural relevance.”

All of the executive team members on the call pointed to how specific contributions are geared towards wiping away Chipotle’s invisibility. Marketing is focused on restoring Chipotle’s image as a fresh, clean brand, while digital is geared towards combining innovation with some much-needed customer awareness. On the design front, the team will be rolling out a new “restaurant of the future” redesign this fall in New York City.

Here Comes Loyalty (and Restructuring)

One of the top customer requests was for a Chipotle loyalty program, which the brand will start to test later this year ahead of a national rollout in 2019. By the way the program is structured, it sounds like an attempt to duplicate Starbucks-level digital loyalty success. There’s no physical card for the loyalty program; instead, customers have to sign up online or through the app to start redeeming rewards. The team plans to be able to market rewards specifically to each customer using data collected through the program.

Chipotle’s chief financial officer, Jack Hartung, gave more details around Chipotle’s restructuring that was announced late last month. The company expects to incur between $115 million to $135 million in costs associated with closing down Chipotle’s Denver HQ and relocating to California, including the layoffs that are coming with that move. The brand also plans to close down 55 to 65 underperforming stores, including five Pizzeria Locale restaurants located outside of the Denver area. (Chipotle is Pizzeria Locale’s largest shareholder.) Hartung noted that about half of the planned Chipotle store closures will happen in the next 30 days.

Setting the Bar High

While Niccol was clearly comfortable pointing out Chipotle’s current weaknesses, he simultaneously shot high with future goals. Despite miss after miss in recent years — in menu innovation, in overall customer perception of the brand — Niccol believes that Chipotle can “easily” double revenues to $10 billion if the turnaround pans out.

“Chipotle will become a brand the people want to know about, want to be a part of and want to wear as a badge,” Niccol said. “I genuinely believe that Chipotle can transcend the food category, separate itself from everyone else and be a category of one because there are no compromises with Chipotle.”