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Chipotle’s Rough Spell Is No Help for Its Rivals

A Chipotle Mexican Grill in Seattle. The chain says it expects it will take up to two years for sales to recover from the effects of last year’s food safety crises.Credit...Stephen Brashear/Associated Press

At least one group saw opportunity in Chipotle Mexican Grill’s string of food safety crises last year — the restaurant chain’s competitors.

Chains like Taco Bell, Qdoba and Moe’s Southwest Grill took steps to win over Chipotle’s wary customers.

So far, it seems those were largely pipe dreams, as no single restaurant business appears to have picked up a big number of Chipotle’s former customers.

What is more, the promotions Chipotle’s competitors have been running to attract its turned-off customers have eaten into profit margins.

The failure of its competitors to capitalize on its problems may provide some hope to Chipotle, whose business has been battered by food safety issues. On Thursday, Chipotle announced that its sales in stores open at least a year had tumbled 23.6 percent, compared with the same period last year. It was the third consecutive quarter that the company’s same-store sales had dropped.

Profits for the quarter that ended June 30 were $25.6 million, down from $140.2 million in the same period a year ago, when Chipotle had its first food safety problem.

Between June 2015 and March, more than 300 people got sick after eating in a Chipotle restaurant, the majority from norovirus contamination at stores in Simi Valley, Calif., and in Boston. More than 100 people in other states were sickened by strains of E. coli and salmonella. The company has said that it expects it will take 18 months to two years for sales to recover.

But competitors do not appear to be gaining much advantage.

This month, the parent of Taco Bell said same-store sales at the chain fell 1 percent in the most recent quarter, in part because it was up against particularly strong sales in the same period a year ago and in part because of a declining number of transactions.

“We expect more out of Taco Bell, given the strength of this brand,” Greg Creed, chief executive of Yum Brands, the parent company, told analysts.

At Qdoba, a chain of Mexican restaurants owned by Jack in the Box, promotions to grab new customers were blamed for denting profit margins.

Leonard Comma, chief executive of Jack in the Box, said Chipotle was forcing Qdoba into more promotional activity. Chipotle has used marketing tactics like offering customers a free burrito.

“When we took a look at what was happening at one of our major competitors in the fresh Mexican grill space” — read Chipotle — “we didn’t want to have the promotional activities we were seeing from that major competitor negatively impacting the Qdoba brand,” Mr. Comma told analysts in May.

Ron Shaich, the chief executive of Panera Bread, said it would be difficult for any single restaurant chain to benefit from Chipotle’s woes because the industry was so fragmented.

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A Moe’s Southwest Grill in Charlotte, N.C. A Harris Poll last month said Moe’s was America’s favorite Mexican food outlet.Credit...Streeter Lecka/Getty Images

“The materiality of what’s happened to Chipotle’s sales is quietly de minimis in the context of any one restaurant company’s business,” Mr. Shaich said.

For example, he said, what if Chipotle dropped $250 million in sales and Panera attracted 5 percent of that amount? “It would mean additional sales of just $12.5 million” — or less than half a percent of Panera’s 2015 sales, he said.

Additionally, overall restaurant sales are stagnant, further minimizing the benefit of Chipotle’s woes for competitors, said Mark Kalinowski, an analyst at Nomura Securities.

According to Nation’s Restaurant News, same-store sales in the second quarter among restaurants fell 0.7 percent collectively, after a 0.2 percent decline in the first quarter.

Chipotle’s troubles did help Moe’s Southwest Grill, at least to a degree. In June, when Harris Poll EquiTrends released its annual rankings of consumer favorites, Moe’s had claimed from Chipotle the spot as America’s favorite Mexican food outlet.

It is unclear, though, whether that popularity has translated into more customers. Moe’s, a privately held company, declined to comment for this article.

Chipotle has taken several steps in the last year to address its safety problem.

The company hired a well-known food safety consultant and changed many of its food preparation practices. It also trained employees in new sanitation protocols and announced a plan to reward its restaurants that score highly on food safety audits.

After the Centers for Disease Control and Prevention declared the E. coli outbreaks over in February, Chipotle closed its stores on Feb. 8 for at least part of the day to meet with employees.

The actions are what crisis management experts often prescribe for a food business trying to reassure customers who have been scared off by a food safety crisis.

“In the short run, you talk about the food safety issues and what you’re doing to address them because that’s what’s on people’s minds,” said Herman Leonard, a professor at Harvard Business School who teaches a class for executives on corporate risk management.

“And then you don’t beat that drum any more because soon the memory of the bad thing that happened will fade — and you don’t want to keep reminding people about it,” he said.

Indeed, even as its stores were closed for the all-hands meeting, Chipotle began moving to win back its customers. That day, Chipotle consumers were offered a “rain check” for a free burrito, bowl or other entree.

The company had expected 2.5 million to take it up on the offer — instead, 5.3 million did.

In a conference call with analysts on Thursday, Chipotle executives said a new promotional program called Chiptopia that is aimed at increasing customer loyalty was working well so far. Since the program started, the number of customers who visit Chipotle restaurants two times or more has increased 90 percent, compared to June.

“Within the first 13 days, thousands of people earned ‘hot’ status by purchasing an entree 11 times or more,” said Jack Hartung, the company’s chief financial officer.

A correction was made on 
July 28, 2016

An article on Friday about efforts by Chipotle’s Mexican-food rivals to capitalize on its stumbles in a series of food safety crises misstated the given name of a Harvard Business School professor who commented on Chipotle’s recovery strategy. He is Herman Leonard, not Herbert.

How we handle corrections

A version of this article appears in print on  , Section B, Page 2 of the New York edition with the headline: Chipotle’s Rough Spell Translates Into Little Help for Its Rivals. Order Reprints | Today’s Paper | Subscribe

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