Chipotle is finally addressing a crisis that has plagued the chain for years - and it has nothing to do with E. coli
"Even before the crisis, we were losing our edge in terms of what it takes to run a great restaurant," CFO Jack Hartung told CNBC's Jim Cramer in an interview on Wednesday.
The burrito chain's sales plunged following an E. coli outbreak in late 2015, which affected restaurants in 14 states. In the first quarter of 2016 - the first quarter after the E. coli scandal - same-store sales dropped 29.7% at the chain.
However, the company had been showing signs of decline even before the E. coli scare.
Same-store sales grew 10.4%, 4.3%, and 2.6% in the first, second, and third quarters of 2015, respectively. For comparison, in 2014, same-store sales grew 16.8% for the year.
Hartung told Cramer that, prior to the E. coli crisis, Chipotle had been struggling after losing focus on the "basics" of customer service and running a restaurant.
"Success sometimes gets in the way of seeing reality," Hartung said. "Year after year after year, we were spending more time talking to ourselves in the restaurants [about], 'how do you feel, is this the right environment,' instead of noticing, there's a customer there, let's go serve that customer... We distracted ourselves."
In recent months, the company has rolled out new hiring, training, and promotion processes that emphasize customer satisfaction. According to Hartung, the new programs have resulted in fewer complaints and improved restaurant operations across the board.
Another problem for the company that predates the E. coli crisis is menu fatigue - an issue that Hartung did not mention.
"We believe [Chipotle's] success made them a bit complacent (although not with its desire to expand its store base or improve in-store operations) as the company's lack of interest in innovation over the last decade has resulted in what we consider to be menu fatigue," Deutsche Bank analysts Karen Short and Brett Levy wrote in early 2016.
Chipotle's menu has remained essentially unchanged since it was founded in 1993.
However, while executives have not openly acknowledged menu fatigue as an issue, the company has made some menu tweaks to spice things up following the E. coli crisis.
In fall 2016, Chipotle added chorizo to the menu, making it the second option the chain has added to the main menu in 23 years (the other is tofu sofritas, added in 2014). And, in April, the company announced it would add dessert to the menu for the first time, in the form of buñuelos, a Mexican treat made of fried tortillas.
In April, Chipotle reported its first positive sales since the E. coli crisis, beating Wall Street expectations. In the first quarter of 2017, same-store sales at restaurants open at least a year rose 17.8%.
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