Since Steve Ells returned to the role of sole CEO in December of last year, Chipotle (CMG, Financial) has implemented significant organizational and operational changes predominantly aimed at elevating the guest experience. This renewed focus on delivering a great guest experience has re-energized and motivated the organization, leading to better customer service scores, lower restaurant manager turnover, and improvements in many other key performance metrics.
We saw some early indication of these improvements when Chipotle reported first quarter 2017 results with same-store sales increasing 17.8% year-over-year. This was the first quarter in which Chipotle fully lapped sales declines relating to food safety issues that began in late 2015. On a two-year cumulative basis that incorporates the impact of these declines as well as the ongoing recovery, same-store sales improved throughout the quarter from a 21% decline in January to a 16% decline in March. Online sales in the quarter increased significantly over the prior year.
As part of the company’s mission to make better food made from whole, unprocessed ingredients accessible to everyone, Chipotle announced in late March that it is the only national restaurant chain with no added colors, flavors or preservatives in any of the ingredients it uses to prepare its delicious food. This milestone achievement was made possible by the successful completion of a multi-year initiative to remove additives from its tortillas. Today, the whole Chipotle menu is prepared with just 51 recognizable, high-quality ingredients that you can find at grocery stores or farmers markets. In support of this important achievement, the company recently launched its largest advertising campaign to date, entitled “As Real as it Gets.”
In December of last year, four new independent directors joined Chipotle’s board of directors, including investment team partner Ali Namvar and Pershing Square advisory board member Matt Paull. The refreshed board is working well together. While the timing and pace of Chipotle’s full recovery from its 2015 food safety incidents remains difficult to predict, we are optimistic about the initiatives that Chipotle’s executive team has put in place to enhance the guest experience, differentiate the brand, increase sales through opportunities like mobile ordering and catering, and improve restaurant margins, over the long-term.
From Bill Ackman (Trades, Portfolio)'s first quarter 2017 shareholder letter.
