Can A New CEO Turn Chipotle Around ?
As the company struggles to re-establish itself after a significant reputation loss due to a food virus impacting most of its restaurants in 2015, Chipotle Mexican Grill‘s (NYSE: CMG) founder and CEO, Steve Ellis, recently announced that he would now become its executive chairman and that the company has begun its search for a new CEO. While it was expected that Chipotle would recover from the food virus in a few months as the company prioritized food safety and took several measures to avoid a repeat incident, a few subsequent isolated incidents and the resulting negative publicity impacted its already fragile reputation further. Despite several measures such as active promotions, introduction of new menu items (including the popular queso), and highlighting the food safety measures, the company has not been able to regain its customer traffic even two years after the major incident.
Chipotle is facing operational issues leading to isolated incidents of viruses or unhygienic conditions and it needs a strong leader who can ensure “incident-free” operations and better customer satisfaction. The company’s founder Steve Ellis mentioned in his departing statement that this move would “allow me to focus on my strengths, which include bringing innovation to the way we source and prepare our food.” While Steve was instrumental in introducing Chipotle as a new concept with its “food with integrity” tagline and focus on fresh ingredients without preservatives, he has not been successful in managing the operations of the restaurant chain which has now grown to more than 2,000 restaurants. Further, his crisis management abilities are also likely to be questioned given that isolated incidents impacted Chipotle’s reputation significantly, after the first major virus outbreak.
Response of investors to the news that the company is looking for a new CEO has been positive and Chipotle’s stock price jumped 5% after this announcement. While Steve Ellis can focus on innovation and creating a differentiated edge for Chipotle in terms of its menu offerings, the company is in dire need of a strong leader who can trigger a turnaround. A seasoned professional who can introduce measures to streamline restaurant operations will be crucial for Chipotle which relies heavily on fresh ingredients – thus higher chances of contamination. A new CEO should be able to bring a fresh perspective which can help the company to wriggle out of its crisis situation. While a new CEO can potentially turn the wheels of the company’s fortune, we believe selecting a strong operations leader might be crucial for the company to trigger a turnaround.
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Click here to see our complete analysis for Chipotle Mexican Grill.
Our price estimate for Chipotle is $284 which is slightly below its current market price.
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