Business Insider/Hayley Peterson
In July, the chain launched Chiptopia, a three-month promotion tied to the number of times customers visit Chipotle. The program had some of the best rewards in the restaurant business, with tons of opportunities for customers to get free food.
By late July, the program had more than 3.6 million participants and accounted for 30% of all transactions.
More than 3 million participants in the first month alone means spending a lot of money on free burritos, especially after the company gave away roughly $70 million in free-food coupons from February to May. Free food has been key to Chipotle's game plan to win back customers after E. coli outbreaks helped drive away business, with the chain's same-store sales dropping 30% in the first quarter of 2016.
However, as September ends and the program comes to a close, it seems it has failed to address one of Chipotle's biggest problems: customer perception.
The chain has hit a wall in terms of brand perception, according to YouGov BrandIndex data. On July 1, the day Chiptopia launched, consumer perception of the brand's quality was 9.4, on a scale of -100 to 100. On September 20, that rating had dropped to 6.8, after almost three-months of staying roughly the same.
YouGov BrandIndex YouGov BrandIndex data on consumer perception of Chipotle's "buzz" and "quality," since January 2015..jpg)
Earlier this week, Chipotle marketing director Mark Crumpacker said in an interview that the chain was losing customers to fast-food giant McDonald's. On Wednesday, the chain launched a new campaign attempting to convince customers the food is safe to eat, after the E. coli outbreaks that drove away customers.
Why didn't Chipotle's rewards program work? Chiptopia is, by all measures, a great deal - one of the best in the restaurant industry. If you buy 12 burritos over the three months (four per month), you get four free burritos. That means it has a return rate of roughly 33% for customers.
That's an incredibly high return rate. For example, look at Starbucks, which has an incredibly successful rewards program. Starbucks Rewards members earn a free food or drink item after spending $62.50. A semi-pricey Starbucks drinks is $5, meaning you're generously receiving an 8% return.
Chipotle's rewards program seems to be facing two big problems when it comes to driving customer perception: it is too confusing to the average customer and not sustainable for Chipotle in the long-term.
From the start, Chiptopia has been aimed at Chipotle loyalists - in part because the program is too confusing for any other customers. The three-tiered system takes quite a bit of studying to sort out, with each level having slightly different rewards and a long list of qualifiers.
In August, Morgan Stanley wrote in a research note that the program had helped convince loyal Chipotle customers to resume their prior frequency, but had not impacted the more casual customers that make up 75% of the chain's customers. While the most loyal quarter of the chain's customer base make up 60% to 70% of visits, if Chipotle wants to reach its former level of customer perception and sales, it needs to recapture the average consumer as well.
Which brings us to the second problem: Chiptopia wasn't designed to perform in the long-term. Just as Chipotle can't afford to keep giving out free burritos forever, a rewards program with a 33% return rate would end up being extraordinarily expensive for the company.
That could be a problem for Chipotle.
"The program's end in September could alienate some customers just as they are getting accustomed to the rewards," BTIG analyst Peter Saleh wrote in a July research note.
Chipotle said two months ago that it was already working on a permanent program to prevent backlash once Chiptopia ends. The new program has not yet been announced by Chipotle, and the company did not immediately respond to Business Insider's request for comment on this article. Hopefully for Chipotle, this rewards program will be less confusing - even if rewards are less bountiful.