Chipotle: We're losing customers to McDonald's

McDonald's has been benefitting from the E. coli outbreaks that sent Chipotle's sales tumbling, according to a Chipotle executive.

The burrito chain has been spending millions on free food offers and ads to lure customers back into its restaurants and assure them that Chipotle is safe to eat in the wake of the outbreaks.

But even some customers who trust that the food is safe aren't returning.

Instead, they have started going to restaurants like McDonald's and "Chipotle knockoffs," Chipotle marketing director Mark Crumpacker told the Associated Press' Candice Choi in a new interview.

The company is launching a new round of ads on Wednesday in another appeal to get customers to return. The ads will feature an open letter from Chipotle cofounder Steve Ells.

McDonald's same-store sales grew 3.6% in the most recent quarter. Meanwhile, Chipotle's same-store sales tumbled 23.6% in the second quarter. That's an improvement from the nearly 30% decline in the first quarter, but not enough of a gain to please Wall Street.

Analysts have expressed some doubts recently over whether Chipotle will ever fully recover from the outbreaks.

In a note published earlier this month, BTIG analyst Peter Saleh said the company's marketing strategy has become "stale" in the minds of consumers and that its millions of dollars in free food offers aren't working.

"The multiple promotions run this year have seen little apparent success and we believe a new approach may be necessary to drive a quicker pace of sales recovery," Saleh wrote.

In a separate note, Morgan Stanley analysts said Chipotle appears to be running out of options.

"We see no quick fix to what Chipotle really needs, a revitalization of top line, and activism's traditional tools for restaurants - spin offs, re-franchising, asset sales and cost cuts - don't appear to offer short term opportunities, leaving few obvious quick levers to pull."

Stifel analysts had an even more brutal reaction.

"We emphatically reiterate our sell rating on [Chipotle] shares following the news that Pershing Square has started a 9.9% activist position," Stifel analysts wrote in a note, referring to billionaire activist Bill Ackman taking a 9.9% stake in the company this month. "We cannot fathom Pershing's operational or mathematical investment thesis.

If you work at Chipotle and have a story to share, reach out to this reporter at hpeterson@businessinsider.com.