Free burritos and booze don’t seem to be helping Chipotle’s bottom line

Chipotle filed a letter with the feds July 1 saying the company isn’t able to measure the financial benefits of offering millions in free food coupons.
4 min. read
Chipotle on Broadway and 6th. (Kevin J. Beaty/Denverite) chipotle; denver; colorado; denverite; kevinjbeaty

Chipotle on Broadway and 6th. (Kevin J. Beaty/Denverite)

Chipotle Mexican Grill Inc. is giving away millions in beer and burritos, but the struggling Denver-based restaurant chain isn't exactly sure what it's getting in return.

Chipotle filed a letter with the feds July 1 saying the company isn't able to measure the financial benefits of offering millions in free food coupons.

Bloomberg first reported about the letter sent to the U.S. Securities and Exchange Commission on Wednesday in a report about how Chipotle was struggling to get customers back to its restaurants.

It's not for a lack of trying that the fast-casual restaurant chain can't bring people back.

Chipotle rolled out its new loyalty program, Chiptopia Summer Rewards, in July where customers could earn free food. That was after the company sent about $168 million in free food coupons between February and May, according to Business Insider.

The latest marketing magic has been Chipotle offering half-price drinks and two-for-one drink specials in eight non-Colorado states.

There's just something about hundreds of Chipotle customers getting sick last year that's not giving the company the comeback it wants.

Chipotle reported in July that revenue for the first half of 2016 was down about $454 million or 20 percent from the first six months of 2015.

In the July letter, Chipotle's senior assistant chief accountant Andrew Mew wrote, "As previously stated, promotional offers of free food do not directly impact revenue.  Furthermore, given the unusual sales trends resulting from the food borne-illness incidents, we were unable to calculate or accurately estimate any indirect impact that promotional activity had on revenue."

The company plans to report any "quantifiable, material impacts of promotional offers on changes in revenue" going forward, Mew wrote.

Companies typically take a financial hit with promotions, said Greg Wagner, a marketing professor at the University of Denver's Daniels College of Business.

"Whether it's free coffee at McDonald's or a Superbowl commercial with Budweiser, usually it's the case where you're going to lose a little bit of money with promotions," he said.

Wagner used to be a creative director at the ad agency Leo Burnett and said promotions are less about immediately boosting sales and more about stealing customers from a competitor or introducing people to your brand.

In the case of Chipotle, the company is likely trying to get back some of the fans it lost after last year's food issues, he said.

"When you do something really bad, it's going to take a long time to recover and you're going to need a long-range plan," Wagner said. "There's no quick fix."

Over time some companies do bounce back.

Tylenol survived the "Tylenol scare" that started in 1982 after seven who took contaminated Extra Strength Tylenol died.

More recently, Carnival Corp.'s Carnival Cruise Line is getting good press again after its Carnival Triumph ship was stalled for five days in the Gulf of Mexico in 2013. The ship was carrying 3,143 passengers and 1,086 crew members.

"I would think that college students are coming back to Chipotle because of their promotions," Wagner said.

As for himself, well, Wagner's not sure he'll ever be Chipotle customer again.

Correction: An earlier version of this article reported Chipotle's revenue loss for the first six months of 2016 incorrectly. Revenue for the first half of the year was $1.8 billion, down $454 million compared to the first six months of 2015.

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