Turnaround Advice: Think Outside the Box at Chipotle!
The recent news that Steve Ells is stepping down from Chipotle as CEO and that Chipotle has hired Brian Niccol, former Taco Bell CEO, to lead the chain through a turnaround has shocked many foodies and confirmed the dysfunction at Chipotle assumed by many industry experts. The stock is a real laggard in a stock market that is up over 30%. The stock once traded at nearly $750 in August of 2015 and last week traded around $255. That is a drop of over 60%! News of the new CEO was welcomed by investors who bid the stock up to $299. Basically, Chipotle lost its mojo, and it is now a turnaround case. Still, turning around a public firm, with many recent and current crises is not an easy job. I recently wrote a business case on Chipotle and found that lots of people have opinions and ideas about the chain. Here are some ideas and some leadership advice for Brian and others in turnaround roles.
- Get Behind the Team and Get the Team Behind You: Chipotle has successfully marketed the concept of “Food with Integrity” and mass customization. Seems if the pigs are happy and the customers can have it their way, it must be that the workers are happy. No so much. This is critical in a quick serve restaurant and a business where workers are front line and customer-facing. Nearly 10,000 workers sued Chipotle in 2016 for unpaid wages, and employees have complained of “shady practices.” It seems hard to make a low-wage job preferred, but look at Wegmans, a family owned grocer that consistently is a top 100 place to work. Even McDonalds markets itself as the place to get your first job and first manager role with success.
Lesson: If you don’t have the team’s back, they won’t have yours. Turnarounds require having everyone on the same page. Start with your team!
- Review Products: Burritos, tacos, chips and salsa are everywhere. Frankly, lots of wonderful Mexican restaurants are available in cities and suburbs. What does Chipotle offer to differentiate itself? The idea of mass customization was/is powerful. However, we can get sandwiches, burgers, pizzas, falafels, and pho made with the Chipotle model here in the Chicago burbs. Brian needs to bring some pizazz to the menu. Korean BBQ tacos – yum! Shrimp diablo –more yum! Really, beans, rice, and a bit of meat are peasant food. Great job, Chipotle, but people want more variety in their diets.
Lesson: Firms are in a turnaround position for a reason. Things have not worked as planned. There should be no sacred cows. Turnarounds are a great time to make wholesale changes that would otherwise be impossible. Consider the product mix as fair game.
- Explore New Revenue Sources: Chipotle has already tried margaritas and some new items, like chorizo and queso. The latter really flopped. When a restaurant turns to booze for growth, you know they are not being creative. Yes, Walgreens, Whole Foods and host of big chains sell booze. However, it is not an advantage, it is a crutch. As a practice, it preys on America’s thirst for alcohol without being creative or differentiating. Related to new products, Chipotle needs new reasons for people to stop by the restaurants. Today, people go at lunch and sometimes at dinner. Breakfast, snacks, late-night, and in-between meals are all great options right out of Taco Bell’s playbook.
Lesson: Growth in mature firms requires exploring new revenue sources or reasons. “Think outside the bun (box)!” Just like Taco Bell did!
- Focus on Critical Operations: Chipotle has been hit from multiple sides on operations. Since 2015, many people have gotten sick eating Chipotle food. The firm’s food preparation practices contributed to the spread of the illnesses and experts in the food safety industry consider these illnesses as largely preventable. The customization model and poor execution during busy lunch periods has led to long lines. Poor operations have turned customers away. That is a self-inflicted error. No competitor did that to Chipotle. They need to align operations with customer expectations. First, the food must be safe. Next, is the food fast, sit down, take-out, or really slow? Why wait for a burrito?
Lesson: Turnarounds are successful because critical operations work well. Be sure the customer is getting what you promised. Turnarounds are not all strategy. Get into the execution and be sure you can actually fulfill and execute.
- Innovate and Make New Investments: Chipotle brought a great idea to the country – watch your food be prepared in front of you and get it your way. It was mass customization with an element of theatre. It worked and is the basis for the “Chipotilization” craze that is redefining quick serve delivery of food in pizza, sandwiches, burgers, Mediterranean food and even Asian food. Chipotle must decide if they are one brand or should become a house of brands. I vote for the later, because Americans like variety in food. Really, how many burritos can we eat? Alfred P. Sloan famously defined the value of the GM house brands and the concept of the architecture of brands that explains why firms hold many brands. He gave us the idea of starting at Chevrolet and moving up to Cadillac. There is a good reason to have different brands, as he showed us. It brings focus to messaging and allows different price points. Chipotle should explore this.
Lesson: Use turnaround times to consider radically new ideas. Make investments that help the business grow in new areas. Consider your brand message. Explore how a new, second, or different brand can offer you access to an untapped and growing market.
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About Russell Walker, Ph.D.
Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University. His most recent book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.
Professor Walker has developed and taught executive programs on Enterprise Risk, Operational Risk, Corporate Governance, Analytics and Big Data, and Global Leadership. He founded and teaches the Analytical Consulting Lab, Risk Lab, Global Lab, and Digital Lab, all very popular experiential learning classes at the Kellogg School of Management, which bring Kellogg MBA students together with corporate opportunities focused on data and strategy. He also teaches courses in risk management, analytics, and on strategies in globalization. He was awarded the Kellogg Impact award by Kellogg MBA students for excellence and impact in teaching.
He serves on the Scientific and Technical Council for the Menus of Change, an initiative led by the Harvard School of Public Health and the Culinary Institute of America, to develop healthier and more environmentally friendly food choices. He is a former member of the board of the Education and Technology Committee to the Morton Arboretum. He was a board member of the Virginia Hispanic Chamber of Commerce, where he developed support programs for Hispanic entrepreneurs and worked with US senators on US Latino matters.
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By Russell Walker, Ph.D.
Russell Walker helps companies develop strategies to manage risk and harness value through analytics and big data. He has done novel research in data monetization and digital disruption and advises leading firms on these topics.
As Director of Experiential Learning in Analytics and Associate Teaching Professor of Marketing and International Business at the Foster School of Business, at the University of Washington, Dr. Walker is an academic thought-leader on analytics. Russell Walker has developed and taught leading executive programs on Big Data and Analytics, Strategic Data-Driven Marketing, Enterprise Risk, Operational Risk, and Global Leadership. Previous to moving to Seattle and the Foster School, Dr. Walker was Clinical Professor at the Kellogg School of Management of Northwestern University, where he founded and taught many popular courses in analytics and risk management.
His is the author of the book From Big Data to Big Profits: Success with Data and Analytics (Oxford University Press, 2015) which examines data monetization strategies and the development of data-centric business models in the new digital economy. He is also the author of the award-winning text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management as a competitive advantage.
Dr. Walker consults with firms on the topics of Big Data and Analytics, Data Monetization, Risk Management, and Business Strategy.
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