Chipotle hopes free food will lead to forgiveness
Listen up, burrito fans: Chipotle wants you back -- even if it means feeding you for nothing.
That's right, the beleaguered chain, struggling to bounce back after outbreaks of E. coli bacteria and norovirus at several outlets across the nation, said it's doubling the amount of free food restaurants can give to customers, as a gesture of good will.
The practice isn't new, Chief Financial Officer Jack Hartung told CNBC, but it hasn't been used much in recent years. The company declined to provide specifics about the revived promotion, but it has sent emails to restaurants detailing just how much they can increase their giveaways and reward customers.
Chipotle Mexican Grill (CMG) has seen sales sag and its stock price tank, losing nearly a third of its value since the first E. coli cases were announced in October.
The company also plans an expansive marketing campaign to begin mid-February that will include direct mail and traditional ads to attract more customers back to its stores.
All that wooing won't come cheap, however -- and Chipotle knows it.
"It's going to be messy in terms of margins, it's going to be messy in terms of earnings," Hartung said Wednesday at the ICR Conference for retailers and restaurateurs.
Chipotle also hopes to use the ad campaign to help consumers better understand what's going on at its restaurants, given the unusual number and kinds of outbreaks.
They include five people who were sickened in July by E. coli bacteria at Chipotle in Seattle. That incident was followed by a similar but unrelated E. coli outbreak in October, reports of which first surfaced in Washington and Oregon and eventually spread to seven other states, sickening 52 people.
Then in December, 136 people became sick after being exposed to norovirus at a single Chipotle outlet in Boston.
In another incident, 64 people were sickened in Minnesota in August and September after eating tomatoes tainted with salmonella.
In total, more than 350 people were sickened after eating at Chipotle last year.
Last month, the chain ran full-page ads in dozens of newspapers across the country apologizing to customers and vowing to ramp up inspections to ensure food safety.
Beyond the public relations nightmare caused by the foodborne illnesses, Chipotle faces mounting legal troubles. Earlier this month, the company said it was served with a federal grand jury subpoena as part of a criminal investigation tied to a norovirus outbreak this summer at one of its restaurants in California that sickened 80 customers and 13 employees.
It was also sued for allegedly misleading investors about its food safety controls.
Analysts are dubious about Chipotle's ability to rebound quickly from its food safety issues, citing the company's own acknowledgment that winning back customers will take significant effort and resources.
In a filing with the Securities and Exchange Commission this month, Chipotle said its "[f]uture sales trends may be significantly influenced by further developments."