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A Closer Look At Chipotle’s Future Strategy

Chipotle Mexican Grill ( CMG ) recently announced management changes, even as it struggles to regain its footing a full year after the E-Coli food virus hit its products. The company's co-CEO Monty Moran stepped down from his post and will retire from Chipotle in 2017. This move makes the company's founder Steve Ells its sole Chief Executive Officer ( CEO ). As Mr. Ellis resumes the company's leadership going forward, his goal is to focus on removing unnecessary complexities from Chipotle's operations. His belief is that Chipotle is based on a simple idea of using great ingredients, preparing them using classic cooking techniques to serve good food quickly. However as the company grew, operations to execute this simple idea became complicated. Now managment aims to simplify them. We believe focused management from Mr. Ells can help the company. However, given the challenges it faces and in the absence of a Co-CEO, he will need a strong team to execute his plans.

See Our Complete Analysis For Chipotle Mexican Grill

Key Focus Areas Include Employee Incentives Tied To Guest Experience

As Steve Ells takes complete charge of the company he founded, he has outlined key focus areas for its future growth. These include:

  1. Focus on an excellent guest experience: Chipotle is focusing on creating an excellent dining experience at all its restaurants. To achieve this goal, the company will ensure that employee incentives are more closely tied to the guest experience. Chipotle will work on evolving its Restaurateur program (which identifies its best performing managers) to ensure that it is simplified and more employees succeed and thrive at the company.
  2. Removing unnecessary complexities from operations: As it grows consistently, Chipotle's operations have become more complicated over the years. The company is now focused on removing these complexities and making its operations simpler. This should lead to efficiency, better customer service and lower chances of error.
  3. Championing innovation: Continuous innovation to bring quality food to customers and innovative techniques to attract them back to its restaurants is critical for Chipotle's growth. Ells is focused on innovation and is likely to roll out a strategy which should entice customers back to Chipotle

While this strategy is focussed on a turnaround for Chipotle, its results will be visible in the coming quarters. Our price estimate for Chipotle (which is around 4% higher than it current market price) assumes that the average number of visits per restaurant per year will increase gradually from 153,000 in 2016 to nearly 176,000 by the end of our forecast period.

This metric is a key driver for Chipotle's valuation and we believe high quality of service and food will be key factors in attracting consumers to the company's restaurants. There can be a nearly 15% upside to our price estimate if this metric increases to 200,000 by the end of our forecast period.

As Chipotle struggles to increase comparable sales, focused management is critical for growth, in our view. The company's founder Steve Ells might be the right candidate to steer Chipotle back into its past glory. However, support from a strong team and innovative strategies will be key for him to lead a turnaround for the company.

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

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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