Chipotle Mexican Grill, a restaurant chain that had long been a customer darling until it fell on troubled times last year, is still in deep salsa.
Who says so? CEO Steve Ells, who in an unusually candid talk with investors this past week, said Chipotle is hurting because customers are getting ticked off. Slow service, sloppy drink stations, cluttered tables, even occasional food shortages at too many of its restaurants are to blame, he said.
The CEO playbook typically calls for making such harsh observations privately, so it's refreshing that Ells went public with his reality check.
But that was easy. Now comes the hard part: Ells must mastermind a business turnaround that will bring back customers and win over, or at least appease, critics that are especially disdainful of Chipotle's handling of last year's food-safety crisis that sickened hundreds of diners and depressed sales.
Ells conceded that the E. coli bacteria outbreak _ which resulted in a systemic reworking of the Denver-based chain's food preparation _ also turned up some operational pitfalls.
That said, the company insists that it has moved beyond that illness episode. Its research shows the health care scare is no longer keeping customers away from Chipotle.
Instead, hard-core restaurant patrons are not going back as much, or avoiding Chipotle, because they don't enjoy eating there like before.
Some issues: Lines are too long and often it's because the food preparers are slow in assembling tacos or burritos. Sometimes, the stores runs out of food items like white rice or chicken, which slows everything down.
Then there are those knotty dining areas.
Cluttered or food-littered tables are a problem. The company says tables (and drink stations, for that matter) aren't bussed fast enough, which means diners do it themselves or simply walk out.
Company executives estimated that about half of Chipotle's 2,100 restaurants experienced some of th0se issues.
Ells, who until last week was co-CEO with longtime colleague Monty Moran, says he let the business get too complex and bureaucratic, forcing people to perform too many functions at the expense of customer service.
Those pressures led to too much staff turnover and less management focus on the diners, Ells said.
His goal is to simplify Chipotle's hiring, training and management systems, which should translate into making the restaurants more pleasant and welcoming places to eat. It's also working on a "second line" to handle food preparation for its new digital ordering service.
"I want to get much closer to the day-to-day operations," said Ells, who founded the chain in 1993.
Despite this back-to-basics commitment, there are mighty headwinds coming Ells' way.
Foremost, the financial results have to get better.
In October, third-quarter earnings came in short of industry analyst expectations. Revenue for the quarter dropped 14.8 percent, to $1.04 billion, a decline driven by a 21.9 percent plunge in same-store sales. Profit was $7.8 million, down from $144 million in the comparable quarter last year. according to the company.
Also, no matter what its internal research indicates, it's hard to believe that last year's E. coli incident won't linger in collective memory for some time. Moreover, if the company is fretful about messy beverage stations and dirty tables, don't you think average diners are connecting such disorder with food health standard concerns?
Food safety is a very personal issue, so Chipotle needs to build its healthy food message, not lower its guard because of some research results.
Then there's shareholder unrest, including a group that wants to stop Ells, who is chairman and CEO, from holding both jobs and is advocating a corporate board shake-up.
"The current board has not been able to provide the sort of decisive _ and effective _ leadership that seems important to put the lingering effects of the food safety crisis behind us," shareholder activist CtW Investment Group of Washington saidin a recent letter to investor Bill Ackman, whose firm owns 10 percent of Chipotle.
Ackman soon could be on the company's board, according to a published report.
The chain must regain, and keep, the trust of the country's taco- and burrito-eating public. Therefore, Ells' candid comments are only one important ingredient in the fast-food company's turnaround recipe.
