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Cheese with your Chipotle burrito? Please. Sour cream? Sure. Norovirus? Hold the norovirus. And maybe swap your inspirational founder for someone who knows more about running a substantial US fast-food chain.
The Mexican restaurant chain is looking for a new chief executive after disasters that began with an E. coli outbreak in 2015 and continued this year with a data breach, storm damage and that norovirus attack. The shares have fallen three-fifths. On Wednesday, Chipotle said founder Steve Ells would step down as CEO, restricting himself to the role of chairman
If the word “executive” preceding that title acknowledges the thought leadership of Mr Ells in corn taco assembly, no problem. If the entrepreneur cannot resist overruling the newbie CEO, a 3 per cent jump in the shares will look overcooked.
“An unco-operative Ells would be the biggest risk to a transition,” opines Bernstein’s Sara Senatore. A time comes in the life of most fast-growing businesses when the progenitor should cede control to a career manager. It is best to go quietly, as illustrated by the fraught removal of Travis Kalanick at online taxi group Uber.
The need for change is glaring at Chipotle. Its problems with basic food hygiene bespeak sloppy processes and weak discipline. Recurrences could destroy this sometime Wall Street darling. They have already hurt comparable-store sales, which rose just 1 per cent in the third quarter. Operating margins have fallen to an unappetising 6 per cent, against 17 per cent historic and over 30 per cent for McDonald’s
The shares are priced for a recovery and growth in the estate of 2,250 stores. At 33 times predicted 2017 earnings, they look pricey compared with rivals, if better value at 25 times for 2019. The stock should rise again if Chipotle hires a decent CEO. That should be easy enough. Harder to restrict Mr Ells to “innovation”. Too many cooks spoil the guacamole.
The Lex team is interested in hearing more from readers. Is Chipotle poised for recovery? Or has it lost the plot for good? Please tell us what you think in the comments section below.