Can Loyalty And Location Data Help Chipotle Reverse Sales Declines?
Foursquare is predicting that the QSR burrito chain’s Q1 same store sales were down 30 percent, as same store foot traffic fell 23 percent. The location-based app developer’s CEO offers Chipotle some advice for a recovery.
In two weeks, embattled fast/casual chain Chipotle will report its Q1 earnings. As investors gird themselves, Foursquare’s in-store foot-traffic data found signs of a continued decline stemming from two separate outbreaks of food-borne illness that left 60 people sick starting in late 2015.
The U.S. Centers for Disease Control announced the E. coli outbreak, which resulted in 11 people being hospitalized, back in February, but analysis from Foursquare CEO Jeff Glueck finds that the sales and in-store visits are far from recovering.
Foursquare examined same store sales and same store foot traffic at 1,900 U.S. Chipotle locations using its Place Insights tool. As part of that review, Glueck, writing on Medium, is forecasting that the burrito chain’s same store sales plunged about 30 percent versus Q1 2015.
But Glueck was quick to note that the situation wasn’t completely dark for Chipotle, as same store foot traffic had fallen only 23 percent during that same time. He surmises that the disparity between its dismal sales and slightly less bad news on foot traffic was due to offers of coupons granting free burritos.
To be sure, free food is obviously going to be attractive to a significant amount of consumers, particularly for a fast food chain. But for a brand as damaged as Chipotle, the acceptance of the coupons can be considered an initial, if lukewarm, vote of confidence that at least some of its customers feel safe returning to its locations.
In other words, it’s a start. And it demonstrates a degree of customer loyalty and trust that Chipotle can build on, Glueck says.
Foursquare found additional signs of customer loyalty even during Chipotle’s tough 2015. Among Foursquare’s findings was that 20 percent of the chain’s customers comprised half of its foot traffic. That sizable 20 percent represents hardcore Chipotle customers coming back month after month. And they remain a crucial foundation for the brand’s rebuilding efforts.
“Interestingly, it’s this group of faithful customers that have changed their Chipotle eating habits most dramatically: these once-reliable visitors were actually 50 percent more likely to stay away in the fall during the outbreak, and they have been even harder to lure back in,” Glueck says. “While those who infrequently visited Chipotle last summer have returned to Chipotle at similar rates as before, the formerly loyal customers have been 25 percent less likely to return. The loss of these important customers is what has really hurt Chipotle, since losing 2–3 loyal customers is the equivalent of losing about 10 other customers.”
The hesitancy of Chipotle’s regular customers has put the chain’s leadership at a crossroads, in Glueck’s view. One of the things that has set Chipotle apart from most chains is the reliance on a formal loyalty program. Restaurant News has quoted Chipotle CFO Jack Hartung dismissing the idea of rewards programs as unnecessary for the fast-casual establishment: “The problem is that Chipotle’s customers are already so darn loyal.”
The Starbucks Model
Considering that Chipotle has been able to solidly hold on to a number of its remaining regulars, despite the abandonment of a large chunk of its past fans, Glueck says now is the time to rethink that stance on loyalty programs.
Glueck’s prescription for a loyalty program was echoed by close observers of Chipotle’s financial performance.
“If now’s not the time to roll out a loyalty program, I’m not sure when is,” writes Bret Kenwell, on investment information site Seeking Alpha. “In a way, Chipotle has almost prided itself on not doing loyalty. And for years, it didn’t matter. Right now though, that’s exactly what the company is suffering from: A lack of loyalty. They need their customers now more than ever and even slinging free burritos at them isn’t helping enough.”
Kenwell points to comments from Mark Crumpacker, Chipotle’s chief creative & development officer, on the company’s most recent earnings call:
“We actually saw a falloff in both the top loyal and the new customers, which isn’t unexpected with regard to the new customers —they’re not as familiar with the brand. So we’re definitely going to be targeting [the loyal customers]. That group of people can represent up to 20 percent of our sales, so it’s a very important part of our group. And so what I’ll say is we’re going after them.”
Kenwell’s response: “Go after them how? With email campaigns and social media? C’mon man, you guys can do better than that. Unroll a loyalty program, reward them for actually being loyal!”
By way of comparison, Kenwell points to Starbucks’ experience with mobile ordering and loyalty as the best path for a return to the days when Chipotle had lines outside many of its franchises’ doors.
“Starbucks had a loyalty program before, but having it on the app along with a payments system was a real growth accelerator,” Kenwell says. “Adding in mobile order and pay is only boosting the company’s results even more.”
Location Is The Analytical Key
In addition to embracing loyalty programs, Glueck also points to closer analysis of ad targeting and in-store attribution to quickly determine what’s working and what’s lagging.
Overall, Glueck is sanguine about Chipotle’s chances to find success with old and new customers. It’s mostly a matter of how quickly and efficiently the leadership can do it.
“When you’re operating a brick-and-mortar business, location intelligence is critical,” Glueck notes. “Chipotle’s burrito-based bottom line proves it.”