Will Taco Bell Template Work For Chipotle's New CEO? – Investor's Business Daily

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At Taco Bell, Brian Niccol was seen as a turnaround artist of sorts. He was an early believer in mobile ordering. Nacho fries, Doritos Locos Tacos, Quesalupas and breakfast? All of them appeared on Taco Bell’s menu on his watch.

X But as he prepares to take the helm at Chipotle Mexican Grill (CMG) in March, leaving the Yum Brands (YUM) unit, a similar approach — possibly resulting in a more mobile Chipotle with more food choices and a better loyalty program — would raise new questions about the assembly-line format, pared-down menu and higher ingredient standards that once won it praise from Wall Street.

Niccol’s appointment, announced late Tuesday, has generally made analysts happy and taken a massive weight off its stock. Shares sprinted 15.4% higher to close at 289.91 in the stock market today. Chipotle stock has fallen for more than two years, hitting a five-year closing low Tuesday, following food-safety concerns and continuing disappointing sales.

But restaurants’ efforts to allow people to order via smartphone have occasionally chafed with the actual locations themselves. Starbucks (SBUX) has been trying to untie the knots of customer traffic that have formed at its locations due to the popularity of its mobile order and pay service. As delivery proliferates, others, like McDonald’s (MCD), have had to tweak how they manage the flow of cars through their parking lots as they roll out mobile ordering and delivery.

Ivan Feinseth, research director at Tigress Financial, said moving food-prep duties like cutting vegetables off-site could help Chipotle move customers through lines more quickly as digital orders grow. A new loyalty program, paired with a mobile app, could mean fewer cash payments — which slows down lines — from consumers willing to pay more, he said.

“They don’t reward their loyal customer base,” he said. “Taco Bell has a very robust loyalty and mobile ordering app.”

Chipotle Mexican Grill has already introduced second-make lines, or lines that sit behind the main ordering stations, to handle digital orders. During its Q4 call, Chipotle said wait times have fallen on those lines. It plans to have second-make lines in at least 30% of its restaurants by the end of this year.

Feinseth also called for the company to expand delivery and open for breakfast — something McDonald’s doubled down on in 2015 to turn its sales around. He said Chipotle could easily do a breakfast burritos and bowls menu. Mexican-blend coffee, he said, along with plain coffee, wouldn’t hurt either.

Those changes would be possible, he said, without deviating from Chipotle’s core menu. And he remains upbeat that people will respond to new additions.

“While people do like simplicity and consistency, the quick-casual industry also drives traffic by change,” he said.

The fast-casual Mexican chain’s new products, so far, have had mixed reception. People said the queso was too gritty. Others said its brand of chorizo, a combination of pork and chicken, was not chorizo-y enough.

What’s more, Chipotle is not Taco Bell. Cowen analyst Andrew Charles, in a research note, said that Chipotle’s sales trends are in far worse shape than Taco Bell’s were when Niccol joined that chain in 2011.

“The guys at Chipotle tried a lot of things,” said John Zolidis, president at Quo Vadis Capital. “They didn’t just sit there waiting for the customer to come back.”

Zolidis said Chipotle’s higher food standards — “Food with Integrity” and the like — may have also made it more difficult to bring in new menu items.

“I don’t think Taco Bell was holding itself to that same standard,” he said.

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