Free Burritos: The Key to Chipotle’s Recovery and Reward Program Institution?
We know that Chipotle hasn’t been having a great run of luck lately, especially after some food poisoning incidents broke out.
With the results for March—and therefore the first quarter for many businesses—coming out, however, we’re seeing a disturbing trend afoot for Chipotle, and one that might only be solved by a loyalty program that’s heavy on the giveaway burritos.
The first quarter for Chipotle, barring some kind of last-minute miracle, will represent perhaps the worst of milestones for the company: the first quarterly loss since the company launched its initial public offering (IPO).
The firm had predicted a turnaround in March, but so far, all that’s happened is that the rate of decline has slowed. However, one of the things credited in the turnaround—such as it was—is a loyalty program that’s proving to be a bear in terms of costs.
Motley Fool analyst Asit Sharma noted that there was still “a level of distrust or reluctance to embrace the brand,” and with probably good reason.
An aggressive policy of handing out free burrito coupons seems to have sparked some interest, but the program is proving expensive at best.
So far, Chipotle has handed out sufficient coupons to mean a combined total of about $62 million, assuming a redemption rate of about one in four. The result is that people are coming back, but not rapidly.
This is a strategy that’s worked in the past. Jack in the Box and Taco Bell had foodborne illness outbreaks at one point, and turned to free food to recover.
Taco Bell took four straight quarters of losses, and Jack in the Box nearly reached the point of closing down altogether before seeing its recovery.
However, Taco Bell took the additional step of hiring a food safety expert to redesign processes with an eye toward fixing problems, and Chipotle has done likewise.
It’s been demonstrated that the right loyalty program can help in situations like these, but it’s not so much about gaining loyalty as it is about recovering loyalty.
Chipotle has to convince former shoppers that it’s safe to come back, and that takes a different response. Chipotle may be next to demonstrate what it takes.