Can Happy Hour Save Chipotle?

By Markets Fool.com

Image source: Chipotle.

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It's unlikely to become your next favorite watering hole, butChipotle Mexican Grill(NYSE: CMG)is testing out drink specials as a way to increase its traffic and sales. The struggling burrito roller is testing Happy Four Hours through select markets in the Midwest, offering half-priced adult beverages through the end of next month.

Happy Four Hours runs daily from 4 p.m. to 8 p.m., and it's being offered at participating stores inChicago, Iowa (outside of Iowa City), Kansas, Kentucky, Missouri, Nebraska, Ohio, and Wisconsin. It's not the same deal across all of the locations.Some are offering two-for-one beers and margaritas. Some are just marking down beers. Some are offering 50% off individual beverages.

It's just as well. It will give Chipotle the chance to see which approach is more successful if it decides to take Happy Four Hours national later this year.

It may very well flop. Chipotle isn't a place that folks associate with getting a drink on. The bright dining room and minimalist industrial decor push the attention to the exhibition assembly line, not the beer cooler by the register. Even afteradding premium margaritasto many of its locations three years ago, adult beverages continued to be a non-factor. Alcohol sales were accounting for just 2% of Chipotle's sales two years ago, the last time that the chain divulged that information in an earnings call.

Whether it's the bare-boned architecture, heavy takeout component, or just the notion that co-workers ducking out for a meal together aren't likely to do heavy drinking, Chipotle may never be the next bar-fueled dining hotspot. You can't blame the chain for trying; nothing else seems to be working.

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Bottoms up

There hasn't been a food-borne illness outbreak at Chipotle since late last year, but consumers still haven't forgiven the chain. Comps plunged 23.6% during the second quarter, making it the chain's third-consecutive quarter of sharp double-digit declines in comparable-restaurant sales.

Chipotle has spent this year offering up promotions that essentially translate into free or discounted food. It's now midway through the three-month Chiptopia promotion that encourages repeat visits to score free entrees.

If non-alcohol items account for 98% of sales, and food specials aren't working, there's little reason to hold out hope for drink specials doing the trick. However, with some casual-dining chains scoring as much as a third of their sales from beer, wine, and cocktails, it's an outlet worth pursuing until the burrito assembly line begins picking up speed.

The chain partnered with master sommelier Richard Betts earlier this year, proposing that Chipotle tweak its margarita recipe, introduce organic sangria, and shake up its beer selection. There's an opportunity here, and if you were Chipotle, you wouldn't just count on chorizo's national rollout to save the day later this year.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.