Here's Why the Best Is Yet to Come for Chipotle

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Chipotle (NYSE: CMG) has suffered due to the sin of arrogance. The company set itself up for failure by building around its "Food with Integrity" catchphrase at the expense of everything else.

The tag line itself was not the problem. Instead, it was the preachy, better-than-you attitude the company espoused that caused a consumer backlash after its various food-safety scandals.

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More importantly, making the integrity of its food the focus of its business caused the chain to falter in other areas. It ignored long waits due to slow production lines in its stores, lagging technology, and it generally fell behind its rivals.

In addition, the company let its menu go stale and flubbed the introduction of queso -- something its customers had been asking for -- by focusing on making it the right way rather than a way that tastes good. These are mistakes the company's new CEO Brian Niccol, who previously led Yum! Brands, won't continue.

A fresh leader

Niccol isn't going to turn Chipotle into another Taco Bell. He's an industry veteran who understands that his new company's core offering is built around offering a better class of food. That does not mean, however, that he won't find ways to offer new items more often and to deliver queso that meets customer expectations.

At Taco Bell, Niccol constantly pushed innovation. That led to products like the Doritos Locos Taco, which is arguably the most-successful fast-food novelty of all time.

Chipotle probably won't be running any snack food partnership deals, but there are other ways to innovate. Niccol will almost certainly find ways to offer seasonal dishes and limited-time items that drive traffic while exciting regular customers.

Technology has improved

The previous CEO, Steve Ells, may have been intractable when it came to the chain's food, but he recognized that its operations needed to improve. Chipotle has a vastly improved app that allows for mobile ordering and payment. In addition, many of its stores have a second production line that fills those orders.

These may seem like small changes, but they are big steps for a chain that has always let its food do the talking. Chipotle may not be a leader when it comes to tech, but it should at least keep pace, and its former CEO and current executive chairman put it on that path.

It's about changing the story

Chipotle has gained back some of its lost momentum. In 2017 the chain saw revenue increase by 14.7% to $4.5 billion while comparable-store sales rose by 6.4%. Earnings per share (EPS) were also dramatically better, rising to $6.17 per share, up from $0.77 in 2016.

For Niccol, a big piece of the job is changing the brand's narrative. That means creating other stories to tell beyond rehashing the food-safety issues every time somebody sneezes in one of its locations. The new CEO seems to understand his role in redefining the brand while also not alienating its core customers.

"At Chipotle's core is delicious food, which I will look to pair up with consistently great customer experiences," he said. "I will also focus on dialing up Chipotle's cultural relevance through innovation in menu and digital communications. This will attract customers, return the brand to growth, deliver value for shareholders, and create opportunities for employees."

That may take a few quarters, or even longer, but the long Chipotle E. coli hangover has begun to pass. The company has been humbled and it now has the right leader in charge to restore its lost luster.

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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.