Foursquare Predicts Chipotle’s Q1 Sales Down Nearly 30%; Foot Traffic Reveals the Start of a Mixed Recovery
When Chipotle came on the scene, the chain earned lots of fans for its approach to “food with integrity,” including antibiotic-free meats, GMO-free ingredients, and fresh local produce. However, the last six months have been a tumultuous ride. Since the first E. coli reports emerged in October 2015, reports popped up across the country raising skepticism about its products and processes, and Chipotle has been racing to squash the issues, institute better training and manage its reputation. The fast casual Mexican-themed chain is still dealing with the repercussions, and an even more recent norovirus outbreak in March at two stores.
In February, the CDC gave the chain a clean bill of health. To take a deeper look at how the downturn and recovery has gone, we analyzed the foot traffic patterns at the more than 1,900 Chipotle US locations and compared them to the previous year. At Foursquare, we have a trove of anonymous and aggregate data on where people go, based on the 50 million people who use our apps (Foursquare and Swarm) and websites monthly. Many users passively share their background location with us, which our technology can match up with our location database of over 85 million places, giving us clear insight into natural foot traffic patterns. (Here’s a video that shows how Foursquare maps a large Chipotle location in downtown Portland, Oregon.)
A Look Back
Foot traffic to Chipotle started to follow the same directionally downward seasonal winter traffic trend in 2015 as in 2014. But as time went on, it became clear that 2015 was no ordinary winter for Chipotle; traffic was down in a more significant way.
The chart below shows the share of visits to Chipotle restaurants in comparison to visits to ALL restaurants in the United States. In the 2015–2016 winter, visits to Chipotle restaurants declined more significantly than in 2014–2015.
Visit share began to recover in February 2016, marked by the CDC’s conclusion of its E. Coli investigation and Chipotle’s ‘raincheck’ promotion launch, ostensibly for customers who were unable to satisfy their burrito cravings during the company’s system-wide closure on February 8. Foot traffic took another dip, albeit much smaller, following the more minor norovirus outbreak in Boston in two locations in early March.
Chipotle has publicly reported its weekly sales for the first 10 weeks of Q1, giving us ample data to build statistical models to project sales for the rest of the quarter. Taking into account reported sales, redeemed coupons and other factors, along with Foursquare foot traffic data, we estimate that Chipotle ended Q1 2016 with same store sales down roughly 30% year-over-year (which we expect to be confirmed by Chipotle when it reports earnings on April 26). Foot traffic estimates, however, tell a brighter story. Foursquare data shows that year-over-year, Q1 same store traffic declined only about 23%. The gap between sales and foot traffic is likely a result of all the free burrito coupons that were redeemed, which lured in people, though not revenue.
We believe the 23% decline in same store foot traffic is the more meaningful number that shareholders should focus on, rather than the 30% decline in sales. It shows that Chipotle is building trust back with customers, which is more important to its success long-term. Although it sacrifices revenue this quarter by giving product away, it is proving to be a winning strategy for getting people comfortable with coming back. The trick is in making sure that these customers come back again and spend money in the future.
“The problem is that Chipotle’s customers are already so darn loyal.” — Chipotle CFO, Jack Hartung (during a July 21, 2015 earnings call to analysts)
Chipotle Needs to Focus on Loyalty
We looked at how frequently customers went to Chipotle over the past year and found some interesting insights. Last summer, just 20% of Chipotle customers made up about 50% of foot traffic visits. Because this cohort of loyal customers reliably returned to Chipotle month after month, they contributed to an outsized percentage of foot traffic, and likely sales. Interestingly, it’s this group of faithful customers that have changed their Chipotle eating habits most dramatically: these once-reliable visitors were actually 50% more likely to STAY AWAY in the fall during the outbreak, and they have been even harder to lure back in. While those who infrequently visited Chipotle last summer have returned to Chipotle at similar rates as before, the formerly loyal customers have been 25% less likely to return. The loss of these important customers is what has really hurt Chipotle, since losing 2–3 loyal customers is the equivalent of losing about 10 other customers.
To demonstrate that this is an unusual loss of loyalty, versus natural attrition, we compared this pattern with a cohort of frequent Panera goers. The chart below illustrates that while both chains experienced a similar seasonal dip, Chipotle has lost much more traffic from its loyalists than Panera has.
Chipotle has famously dismissed the idea of having a loyalty program, stating that it didn’t believe that loyalty programs help turn infrequent goers into loyal visitors. According to Chipotle CFO Jack Hartung, “The problem is that Chipotle’s customers are already so darn loyal.” Looks like it’s time to reconsider those famous last words.
So, where are they headed instead? Foursquare foot traffic data reveals that they have replaced their usual Chipotle visits with visits to other popular chains such as McDonald’s and Starbucks. They have also been slightly more likely than the average person to visit Whole Foods, for which there are some naturally overlapping qualities in offerings that have more integrity and healthfulness.
Looking to the Future
Two weeks from today, Chipotle will share its official Q1 earnings. We, alongside most analysts, anticipate the bitter pill the restaurant chain will have to swallow as they report on losses. But we also see a more unique, nuanced and slightly rosier picture, and urge Chipotle to continue building brand loyalty — one burrito at a time.
Foursquare’s Location Intelligence Paves the Path To Recovery
The data looks promising for recovery, but there will be trouble for Chipotle if they don’t lure back the formerly loyal visitors or nurture a new group of faithful fans.
Some ideas for how to do this effectively:
- Analyze foot traffic patterns by using Place Insights powered by Foursquare.
- Target advertising at the formerly frequent Chipotle visitors who have the power to bring back larger percentages of sales by using Pinpoint powered by Foursquare.
- Measure all of its digital marketing initiatives so they can double down on the programs that are most effective at turning visitors into loyalists; they can do this through Attribution powered by Foursquare.
When you’re operating a brick-and-mortar business, location intelligence is critical. Chipotle’s burrito-based bottom line proves it.
Notes on Methodology
- How foot traffic data is gathered: To analyze foot traffic patterns to Chipotle, Panera, and other restaurants included in this report, Foursquare looked at explicit check-ins and implicit visits from Foursquare and Swarm app users who enable background location and visit these locations in the U.S. Foursquare’s proprietary understanding of Place Shapes and how mobile phones see the world is the foundation of Place Insights, our product for analysts and marketers. Foursquare data is always anonymous and reviewed in the aggregate.
- *“Loyal visitors” is defined as customers who visited Chipotle at least once a month from June-August 2015.