Why a New CEO Won't Fix Chipotle's Problems

Why a New CEO Won't Fix Chipotle's Problems

Chipotle (NYSE: CMG) had yet another rough year in 2017. Just when the company seemed to be turning things around in May with the stock heading back toward $500, a lukewarm second quarter and another food safety scare sent the stock back down to about $300, where it currently still trades.

Recently, founder and CEO Steve Ells announced he’d be stepping down as CEO, and the board will be conducting an executive search. Several potential candidates have emerged, according to Bloomberg , each with successful backgrounds as restaurant executives. However, I’m skeptical any of them will really be able to turn things around — here’s why.

a young man in a tie yells at someone across a desk, who points to a company document, arguing.

A new CEO at Chipotle won’t have a picnic. Image source: Getty Images.

The candidates

Bloomberg gave five possible names to take over the role, which it has deemed, “the toughest job in the restaurant industry.” They are:

  1. Ron Shaich — the founder of Au Bon Pain and Panera Bread, both of which sold to private equity firm JAB Holdings last year.
  2. Patrick DoyleDomino’s Pizza  CEO since 2010. The pizza chain has been wildly successful, in sharp contrast to Chipotle.
  3. Cheryl Bachelder — An industry veteran and former CEO of Popeye’s, which was bought out by Restaurant Brands International in 2017.
  4. Brian Niccol  — current CEO of Taco Bell, part of YUM! Brands . Brian is young at only 42 and was apparently the brain behind a lot of Taco Bell’s crazy, yet successful creations like the Doritos Locos taco. Some think his knack for hip marketing could benefit Chipotle.
  5. Lucy Brady — a former consultant and current McDonald’s  executive. McDonald’s used to own Chipotle, and the latter could benefit from the fast food giant’s supply chain prowess.

Why I’m skeptical

Given the list of qualified candidates, the problem is not one of talent. I remain skeptical, because their skills are nothing new for Chipotle, and the company’s strategy has proven inadequate over the past few years.

For instance, Ron Schaich is credited with cleaning up Panera’s menu and launching “Panera 2.0” with healthier options and a world-class digital initiative. But Chipotle already has a clean menu completely free of GMOs, and employs Curt Garner as its Chief Technology Officer. Garner previously spent 17 years at Starbucks , which is known for its world-class digital offering.

Niccol is known for snappy menu innovations and marketing, but Chipotle has already tested various new products such as chorizo and more recently, the controversial queso dip , backed by heavier marketing spend. That didn’t seem to work either, as chorizo was recently pulled, and the queso bounce has not quite been what many have expected (at least financially — I happen to like it myself).

Doyle and Bachelder both come from fast food chains with franchised business models. That’s in contrast to Chipotle, which owns all 2,300 of its restaurants. Franchising Chipotle could be an option, but that would make quality control even more difficult — exactly the type of thing that got the company into trouble in the first place — and in stark contrast to the restaurant’s culture.

McDonald’s expertise? Well, Chipotle’s longtime CFO Jack Hartung previously spent 18 years at McDonalds, and current board member Matthew Paull was previously McDonald’s CFO. So I’m not sure what another McDonald’s executive would bring that Chipotle doesn’t already have.

I need a miracle

Chipotle achieved incredible success over the past decade by driving huge volumes through its restaurants, all with the appeal of an incredibly simple menu. However, the food safety incidents of 2015 and 2017, along with more competition in the fast casual industry, seems to have dented overall demand.

Right now, I’m not sure how you win customers back without increasing product offerings and marketing, which both come with increased costs. And many of the fast-food industry tricks simply won’t work at Chipotle. That’s why I sold my Chipotle stock last summer but continue to watch it from the sidelines, hoping for robust sales growth to return.

So will a new CEO be the magic fix the company needs? I don’t think so.

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Billy Duberstein owns shares of Starbucks. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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