Chipotle Just Showed Off New Menu Items -- What Could Go Wrong?
For years, Chipotle Mexican Grill (NYSE: CMG) kept its menu fairly rigid. It rarely added anything new, and when it did, it was a major event.
Now, the company plans to change that. It has a slew of new items -- nachos, avocado tostadas, quesadillas, chocolate milkshakes, and more -- being tested at its NEXT Kitchen in New York. Not all of these items, though, will necessarily make it to the chain's restaurants.
After being tested at NEXT, these new additions will be tested at a handful of Chipotle locations. If the results are good, then the company will roll them out around the country.
This is a big change for Chipotle, which generally would add a single new ingredient to its menu less than once a year. That's clearly something that new CEO Brian Niccol wants to change, but the former Taco Bell boss' move is not without risks.
What are the risks?
Chipotle has learned the hard way that if you give the people an item they demand but don't execute it well, the blowback can be severe. The company finally gave its customers queso -- a highly requested menu addition -- in September. However, the rollout did not go well.
Consumers complained about the texture and taste. Chipotle tweaked the recipe and backlash lessened, but the reality was that the Mexican chain was right to not have had queso on its menu. The reason the chain had avoided the popular cheese sauce is because its classic texture comes from using ingredients that don't meet Chipotle's "food with integrity" standards.
To make queso that met its standards, Chipotle had to deviate from what people expected. That meant the new cheese dip was already starting with a strike against it.
These same potential problems exist with any other new menu items the chain hopes to roll out. Niccol is more open to change than his predecessor, Chipotle founder Steve Ells, but he has not yet shown that he is as protective of the core brand.
Essentially, Ells was too rigid. He was against seasonal offers, generally against loyalty programs, and when things went wrong, he was slow to make changes. Where Niccol faces risk is that it's hard to know exactly how much change should happen and at what pace. Chipotle's core audience might not respond well if the chain were to use gimmicks like the ones Niccol used at Taco Bell.
Niccol is right that Chipotle needs to expand its menu. The company also has to maintain its standards. It's easy to grow the menu at Taco Bell, where any novelty will fly. Chipotle's core audience, however, wants queso but it wants a gooey cheese dip that's also made with real ingredients. That's a difficult challenge, and one that can backfire (as we saw with the queso rollout).
In addition to potential negative reactions from customers, Chipotle also has technical concerns. It has always had a policy of keeping the number of ingredients it uses roughly the same. That was a decision made based on the limited size of its prep area.
Adding new items and ingredients runs the risk of slowing down the chain's throughput. Chipotle has tried to address this customer complaint by adding a second production line in the back of many stores to fill digital orders.
Niccol isn't blind to these risks. He actually discussed them on a recent conference call, but it's hard to predict how customers will react and whether menu changes will impact how stores operate.
Niccol may get it
While Niccol intends to expand the Chipotle menu, he's not going to play the same game he did at Taco Bell, where limited-time offers (LTOs) were used to drive traffic. Some of Chipotle's new items may be seasonal, but they are not going to be LTOs, Nation's Restaurant News reported. This decision shows that Niccol may understand the game he's playing in trying to entice more visits and lure new customers without alienating his company's core audience.
He also has significant experience running a restaurant chain that changed its menu a lot. That should give him insight into the training requirements it will take to expand the menu efficiently.
This should work
It's important to note that Chipotle isn't testing novelty items. There's no Doritos Locos Taco on the list of new items being tested. Instead, the company is exploring expanding its menu into logical areas that fit its overall mission.
Niccol has to walk a tightrope. He needs to innovate while staying true to the idea of "food with integrity." It appears that he should be able to do that as long as he learns from the lesson of the chain's experience with queso.
It's better to not offer an item than to compromise standards or deliver an experience consumers don't like. That means that some tested items may not make it. Niccol will be better off as CEO if he understands and accepts that.
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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.