Chipotle Pulls Out the Stops to Win Back Customers

Chipotle saw a smaller drop in sales as it tries to win back customers, but the company says it doesn't know how long it will take to fully recover after an E. coli outbreak and norovirus cases last fall.

"There's never been a case like this," Chief Financial Officer Jack Hartung said Thursday during a conference call with analysts.

For the April-to-June period, the company said sales fell 24 percent at established locations, less than the 30 percent drop stores saw in the first three months of the year when Chipotle posted its first quarterly loss as a public company.

So far in July, Chipotle said, sales are improving further after the launch of its first loyalty program that rewards people for frequent visits. The program reflects a change from better days, when Chipotle said it didn't need such giveaways to get people to buy its bowls and burritos.

The "Chiptopia" program, which runs through the summer, reflects how the company has been forced to act out of character to win back customers. Chipotle is also spending more marketing than ever before and expanding its famously simple menu to add chorizo. In restaurants where it has been made available, Chipotle said that the topping accounts for 6 percent to 7 percent of entree orders.

Chipotle said it expects to have another program after the summer to keep drawing in customers, but hasn't yet worked out what that will be.

During the conference call, Chipotle's co-CEO Steve Ells also addressed another recent setback: The company's top marketing executive was slapped with cocaine-possession charges. Mark Crumpacker was placed on leave after he was named in an indictment by the Manhattan District Attorney's Office. Chipotle said other managers have taken over Crumpacker's responsibilities.

For the quarter ended June 30, Chipotle's profit sank to $25.6 million, or 87 cents per share. Wall Street expected a profit of 91 cents per share, according to FactSet. A year ago, the company earned $140.2 million, or $4.45 per share.

Total revenue, which factors in new store openings, declined to $998.4 million. Analysts expected $1.05 billion.

Morgan Stanley said last week that it believes a full sales recovery back to Chipotle's peak volumes could take years, based on a consumer survey it conducted. The survey showed about a quarter of Chipotle customers have either stopped going or reduced how often they eat at the chain, six months after the last reported food safety incident.

In the meantime, Chipotle has been distributing millions of coupons for free entrees, or "buy one, get one free" offers.

Even if they're not paying full price, Chipotle wants to get people in the door to overcome any hesitations they might have about returning. Appearances are important, too: Filling up stores with customers is key to convincing even more people that everything is back to normal.

The company says its measures are getting its loyal customers to come back.

Chipotle Mexican Grill Inc.'s shares have declined 13 percent since the beginning of the year, while the Standard & Poor's 500 index has increased almost 6 percent. Its shares fell about 1.4 percent to $412.25 in after-hours trading.