CHIPOTLE CEO: We've been the victim of a 'lack of discipline' - but that's set to change
- Chipotle's new CEO, Brian Niccol, isn't shy about revealing the company's recent struggles are attributable to "discipline" issues.
- He's initiating several plans to improve the operational efficiency and precision of the company.
- That'll help is drive its plan to reorganize the company, and execute its digital and marketing strategy.
- Watch Chipotle trade in real time here.
Chipotle CEO Brian Niccol took the helm just a few months ago, and he's already sharing his reasons for why the chain is undergoing a big reorganization.
On Wednesday, Chipotle announced it's closing 55 to 65 stores because they've been unprofitable. The reorganization also involves a shift to new headquarters, and the addition of new talent.
The burrito chain has been on a roller coaster ride over the past several years. In 2015, there was an E. coli outbreak that sickened more than 50 people in 11 states between October and December. A second, smaller outbreak sickened people in December. Then, in July 2017, at least 133 customers were sickened by a norovirus outbreak at one of its stores. Shares lost two-thirds of their value before bottoming out in February 2018, just before Niccol was named CEO.
"There was a lack of discipline around priorities, process and accountability, and we were not sufficiently results-focused, which made us reactive and hampered execution," Niccol said on Wednesday's conference call. "I found skills gaps in many areas and insufficient data for decision-making that have held us back from reaching our potential," he added.
Niccol thinks there is a simple solution: finding better talent. The company is hiring experienced talent in marketing, human resources, and digital sales. Perhaps his most important new hire is Marissa Andrada, head of human resources. She'll oversee the organizational change. "We will be committed to driving accountability for performance and people at Chipotle as this is critical to cultivating a better world," she said.
The new accountability measures Chipotle management is putting in place should help it execute a few core components of its new strategy: digital sales, better marketing, and a leaner corporate structure.
"Chipotle sees technology as key to unlocking throughput at peak," Jefferies analyst Andy Barish wrote in a note out to clients." Moreover, he stressed Chipotle will kick-start its third-party delivery initiative this summer, which will get food from 1,500 stores to customers' homes. Chipotle also has an app that allows customers to order from anywhere and pick up at a store near them.
"Over half of our customers aren't even aware that you can order ahead for pick-up," Niccol said on Wednesday's call. He plans to use marketing dollars to raise awareness of the app.
"Chipotle will focus primarily on driving awareness in both digital & traditional channels, highlighting value proposition, and a more active dialog in customer conversations," Barish wrote. He said he's already noticing more partnerships with sports teams, but he also expects more social-media marketing.
The headquarter move to Newport Beach, California will help the burrito chain eliminate two layers of management, Barish said. And while Chipotle is adding employees in marketing, digital sales, and analytics, the reorganization will still save it money on net. General and administrative expense savings will be reinvested, according to Barish.
While these changes may help the company navigate the long terms, Wall Street doesn't seem to excited with the plan as shares are down more than 8% on Thursday.
Barish has an unchanged $350 per share price target, roughly 17% below current levels.
Chipotle is up 56.05% this year.
