Chipotle has just reported some terrible news: its profits are down 95%.
More detail from the Wall Street Journal article::
"...The burrito chain on Tuesday reported same-store sales fell a worse-than-expected 21.9% in the third quarter. Analysts were anticipating a drop of 18.7%. Profit fell 95% in the quarter. Still, the decline marks a recovery from prior months, including its steepest sales decline in January, when same-store sales fell 36.4%.
'While we’re on the road to recovery, we’re not satisfied,' Chipotle Co-Chief Executive Steve Ells told investors on Tuesday.
[...] Chipotle reported a profit of $7.8 million in the third quarter, or 27 cents a share, down sharply from a last year’s $144.9 million, or $4.59 a share. Analysts polled by Thomson Reuters were looking for per-share profit of $1.59. Revenue fell 15% to $1.04 billion, below expectations for $1.09 billion."
Remember that profits are dropping in the midst of Chipotle opening 168 new stores, so each restaurant is in fact making less than before, and many of its locations have likely become unprofitable.
Chipotle isn't going to recover anytime soon because it's really a culture problem -- a company culture problem, that is. Having counseled over two hundred businesses both big and small, which include dozens of restaurants, worked as a restaurant manager, and being certified as a ServSafe® Food Manager myself, I feel somewhat qualified to critique Chipotle. So, what are the indicators of what is really "wrong" with Chipotle?
More detail from the Wall Street Journal article::
"...The burrito chain on Tuesday reported same-store sales fell a worse-than-expected 21.9% in the third quarter. Analysts were anticipating a drop of 18.7%. Profit fell 95% in the quarter. Still, the decline marks a recovery from prior months, including its steepest sales decline in January, when same-store sales fell 36.4%.
'While we’re on the road to recovery, we’re not satisfied,' Chipotle Co-Chief Executive Steve Ells told investors on Tuesday.
[...] Chipotle reported a profit of $7.8 million in the third quarter, or 27 cents a share, down sharply from a last year’s $144.9 million, or $4.59 a share. Analysts polled by Thomson Reuters were looking for per-share profit of $1.59. Revenue fell 15% to $1.04 billion, below expectations for $1.09 billion."
Remember that profits are dropping in the midst of Chipotle opening 168 new stores, so each restaurant is in fact making less than before, and many of its locations have likely become unprofitable.
Chipotle isn't going to recover anytime soon because it's really a culture problem -- a company culture problem, that is. Having counseled over two hundred businesses both big and small, which include dozens of restaurants, worked as a restaurant manager, and being certified as a ServSafe® Food Manager myself, I feel somewhat qualified to critique Chipotle. So, what are the indicators of what is really "wrong" with Chipotle?
1. Holier-than-thou attitude: It's fine if you want to brand your food as being healthier or better in some other fashion. But to elevate your marketing into company dogma means drinking your own Kool-Aid. Trademarking "Responsibly Raised™" doesn't make factory farming and the mass slaughter of animals any less gruesome or a public health hazard than they already are. Make no mistake, I like meat, and I've worked on an organic farm before. Farming animals, whether chickens in a cage or chickens on a meadow, will invariably still mean large amounts of feces, blood and other unsavory things. So when companies try to plaster marketing over truth, and then start believing their own BS, it makes for a company culture that becomes blind to other somewhat nasty realities, such as contamination and human error.
2(a). BS Marketing: Besides trademarking "Responsibly Raised™", Chipotle also has a slew of other slick, expensive marketing gimmicks, like "Food With Integrity" and making attack ads against mass-produced fast food. But customers have really seen through the greenwashing and have voted with their wallets. How can Chipotle charge only $6.50 + tax for food "...sustainably grown and raised responsibly with respect for the animals, the land, and the farmers who produce the food..." if it's not in fact substantially similar in origin to other fast food chains, since the equipment, number of employees, restaurant size, and other variables are all similar to, say, Burger King or McDonald's? And the waste generated from a Chipotle meal is also comparable to that of other fast food restaurants. My restaurant economics hypothesis is that either Chipotle, its suppliers and/or the farms it sources food from cut corners. Chipotle can cut corners because its marketing statements contain voluminous gray areas, so that it can shift to whatever's ultimately profitable. For example, Chipotle doesn't guarantee free range chickens, it merely "develops close relationships" with farmers who say they will try their best.
2(b). More BS: It may seem like a dead horse, but the question remains valid as ever: did Chipotle ever actually figure out what caused large numbers of food poisonings? No. It's now even facing a federal criminal investigation. Chipotle responded in part by paying a lawyer to try and hush up the Centers for Disease Control and Prevention for warning the public! The CDC's reply letter is a classic and a hoot, undermining Chipotle's lawyer's claims. Paying for new ads and closing stores for a few hours while your overpaid CEO (see #4, below) lectures your employees about food safety doesn't mean anything's actually fixed. So much for "Food With Integrity".
3. Co-CEOs: If you know what marital spats are like, how do you think marital problems turn out in a billion-dollar company and without the possibility of conjugal relations? Don't take my word for it. Because a lot of responsibilities overlap, co-CEOs have to spend more time thinking about ways to not step on each other's toes, as well as ways to prevent encroachment on their own territory. Accountability becomes diffused when responsibilities overlap.
4. Overpaid CEOs: Are Steve Ells and Monty Moran really worth $300 million a year? While they may have been instrumental in building Chipotle from the ground-up, the menu, the decor, etc. have stagnated even as competitors have innovated.
5. Continued Lack of Food Safety: Yeah, I hope nobody actually ate the chips or the raw guacamole or the raw salsa that a Chipotle employee samples and then puts out for sale (while wearing gloves... more greenwashing -- see page 19 of this food safety manual), or this burrito or these tacos that were subject to bare hand contact. The last animated video I might be able to excuse as marketing, but the first and second, I think, are Freudian slips showing the inherent problems within the culture of arrogance at Chipotle.
BONUS: Co-CEO Steve Ells blatantly shows how things are really done at Chipotle! (Red flags: bare hand contact with ready-to-eat foods; eating in food prep areas).
BONUS #2: Spot violations from 2:06 - 2:11 in the video above.
Answer: Woman in front of guacamole and lettuce is wearing unapproved jewelry; she has hairbands on her right wrist and a bracelet on her left wrist.
2(a). BS Marketing: Besides trademarking "Responsibly Raised™", Chipotle also has a slew of other slick, expensive marketing gimmicks, like "Food With Integrity" and making attack ads against mass-produced fast food. But customers have really seen through the greenwashing and have voted with their wallets. How can Chipotle charge only $6.50 + tax for food "...sustainably grown and raised responsibly with respect for the animals, the land, and the farmers who produce the food..." if it's not in fact substantially similar in origin to other fast food chains, since the equipment, number of employees, restaurant size, and other variables are all similar to, say, Burger King or McDonald's? And the waste generated from a Chipotle meal is also comparable to that of other fast food restaurants. My restaurant economics hypothesis is that either Chipotle, its suppliers and/or the farms it sources food from cut corners. Chipotle can cut corners because its marketing statements contain voluminous gray areas, so that it can shift to whatever's ultimately profitable. For example, Chipotle doesn't guarantee free range chickens, it merely "develops close relationships" with farmers who say they will try their best.
2(b). More BS: It may seem like a dead horse, but the question remains valid as ever: did Chipotle ever actually figure out what caused large numbers of food poisonings? No. It's now even facing a federal criminal investigation. Chipotle responded in part by paying a lawyer to try and hush up the Centers for Disease Control and Prevention for warning the public! The CDC's reply letter is a classic and a hoot, undermining Chipotle's lawyer's claims. Paying for new ads and closing stores for a few hours while your overpaid CEO (see #4, below) lectures your employees about food safety doesn't mean anything's actually fixed. So much for "Food With Integrity".
3. Co-CEOs: If you know what marital spats are like, how do you think marital problems turn out in a billion-dollar company and without the possibility of conjugal relations? Don't take my word for it. Because a lot of responsibilities overlap, co-CEOs have to spend more time thinking about ways to not step on each other's toes, as well as ways to prevent encroachment on their own territory. Accountability becomes diffused when responsibilities overlap.
4. Overpaid CEOs: Are Steve Ells and Monty Moran really worth $300 million a year? While they may have been instrumental in building Chipotle from the ground-up, the menu, the decor, etc. have stagnated even as competitors have innovated.
5. Continued Lack of Food Safety: Yeah, I hope nobody actually ate the chips or the raw guacamole or the raw salsa that a Chipotle employee samples and then puts out for sale (while wearing gloves... more greenwashing -- see page 19 of this food safety manual), or this burrito or these tacos that were subject to bare hand contact. The last animated video I might be able to excuse as marketing, but the first and second, I think, are Freudian slips showing the inherent problems within the culture of arrogance at Chipotle.
BONUS: Co-CEO Steve Ells blatantly shows how things are really done at Chipotle! (Red flags: bare hand contact with ready-to-eat foods; eating in food prep areas).
BONUS #2: Spot violations from 2:06 - 2:11 in the video above.
Answer: Woman in front of guacamole and lettuce is wearing unapproved jewelry; she has hairbands on her right wrist and a bracelet on her left wrist.