Chipotle: 'Natural' may not be the hook it thought

Say it ain’t so, Steve. Chipotle’s use of natural ingredients was the example everyone cited to prove the consumer mainstream cared about more-wholesome foods. If a chain of more than 800 units could do it, and make a fortune in the process, couldn’t others? It was the reason chain execs across the spectrum were yelping out a “Yes I can!,” as if they were at a tent revival meeting.

But the spirit didn’t move customers as much as everyone might have thought, Chipotle co-CEO and founder Steve Ells admitted to financial analysts Wednesday evening. Consumers would hear the chain’s Food with Integrity marketing promise and fail to see the light.

“One of the things that we found in our research is that we have not been getting credit for the Food with Integrity initiative,” Ells explained. “People understand that Chipotle food tastes better. They don't necessarily associate higher quality ingredients, sustainably raised ingredients, with Food with Integrity…These kinds of things are important, we think, in how we source our food, but our customers tell us this is not the kinds of things that are important to them."

So, he said, the chain will downplay the integrity boast in a new campaign that breaks next month, themed “My Chipotle.” Ells explained that the campaign will tout variety, customization and flavor, with the latter attributed in part to “great quality raw ingredients.” He did not give any indication that the chain would actually downplay its use of natural foodstuffs, just the crowing about it.

The heart of the My Chipotle campaign, Ells said, will be a new website, MyChipotle.com, where patrons can testify about their love for the food. Customers will be invited to post pictures, videos and audio clips about their favorite items on the menu. Some of that material may then be used in television, radio or print ads, he said.

Among the other gems served up during the quarterly conference call was a quantification of culture’s impact on Chipotle’s finances. Co-CEO Monty Moran observed that a typical outlet of the chain employed a crew of 22 people in 2006, when unit sales average $1.5 million. Today, he said, the headcount is down to 19 staffers, but the per-store mean has jumped to $1.75 million.

The cause, he said, was a carefully cultivated culture that aims to put “our highest performers in the highest impact positions.” In the past year, Moran added, favorable customer comments have doubled, while complaints have fallen.

A thank-you to SeekingAlpha.com for posting a transcript of yesterday’s call.