Chipotle Loses Money Hand Over Burrito in Attempt to Restore its Reputation

Let’s say a popular chain restaurant was having some food safety issues, to the point at which they shut down every existing location to address the problem.

On the day their restaurants were closed, they offered people the opportunity to text “raincheck” to a certain number and receive a coupon for a free entrée.

Would you do it? You can almost hear Homer Simpson saying “I might get sick… but it’s free!”

Turns out 5.3 million people requested the free food.

At this point, you know I’m referring to Chipotle. MarketWatch quotes Chief Creative and Development Officer Mark Crumpacker on the success of the free burrito campaign:

“[T]hat was about 14,000 per minute at peak,” said Crumpacker, who said the company had anticipated 2.5 million participants. The company saw a 67% redemption rate, he said.

And sure, only about 55 people got sick during the initial E. coli outbreak… and five people got sick in a second E. coli outbreak… and 60 people fell ill with salmonella poisoning… and 153 people got norovirus???

But even if approximately 500 people got sick from eating at Chipotle, a free $7.70 burrito is hard to turn down. (Just think of all those people who didn’t get sick!) More importantly, those free burritos got around 3.5 million people—approximately 67 percent of 5.3 million—to eat at Chipotle.

At $7.70 a burrito, that’s about $27 million in free burritos—although, as a savvy Billfolder quickly noted in the comments, Chipotle probably only lost the money it cost to make the burritos, not the actual sales value.

Back to MarketWatch:

In an after-hours regulatory filing posted on Tuesday, Chipotle said it will incur higher-than-expected expenses during the quarter, in part due to marketing and promotions.

No surprises there. But BloombergBusiness has a more nuanced story:

Higher spending on marketing, legal costs and food safety, including increased waste from discarding ingredients, is weighing on profit, Chipotle said.

Think for a minute about what that statement means—or, rather, what the opposite of that statement means.

Any other disappointing news from BloombergBusiness?

The crisis has cut into the pay of Steve Ells and Monty Moran, the company’s co-chief executive officers. Each saw his compensation fall by more than 50 percent last year, with Ells coming in at $13.8 million and Moran at $13.6 million, according to a recent filing.

That’s still enough to buy nearly two million Chipotle burritos, in case you were curious—and as the The Wall Street Journal just reported, Chipotle will be buying its customers a lot of burritos in the near future:

Chipotle Mexican Grill Inc. is planning to give away even more burritos as part of what the restaurant chain says is a successful campaign to win back customers.

Why would a company that’s losing money hand over burrito continue to give away its product?

Drawing people back with free burritos, [Chief Financial Officer Jack Hartung] said, helped convince other customers to come in.

“Our restaurants are full again,” Mr. Hartung said during an investor conference in New York. “When people walk by a Chipotle restaurant, they would look in and say, that’s a Chipotle restaurant, it’s busy, they’re cooking food, lots of people are eating and so it must be OK again.”

Or it could be that people will do anything for free food.

Or that Chipotle will do anything to restore its reputation.

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