In this way, in the first nine months of 2016, the company boosted its marketing and promotional costs, which represented $20.7 million and $75.9 million of its third-quarter operating costs, according to the company’s last 10-Q report. Out of revenue of $1.04 billion for the first nine months of 2016, restaurant operating costs, restaurant operating costs amounted to $890.29 million. As percentage of revenue restaurant operating posts increased by 15.4% on the year with marketing spend on promotions to regain customers contributing 3.5% to the increase.
Earlier this year, Chipotle Mexican Grill, Inc. (NYSE:CMG) said it registered a nearly 15% increase in same store sales in December, which was a sign that the company is finally managing to get some traction following the food safety scandal. At a recent conference in Florida, the company announced its marketing plan for this year, which involves a big marketing campaign and a TV series for kids (no idea why), but the company also plans to cease giving away free food. Chipotle also plans to focus on digital ordering and has recently launched an online tool that helps customers build their meal based on their diet and count calories. Aside from expenses on promotions to regain customers, Chipotle Mexican Grill, Inc. (NYSE:CMG) is also burdened by increased labor costs and in 2017 it may increase menu prices to offset the costs. The company will proceed with caution and will analyze customer reaction to price hikes. However, even though Chipotle Mexican Grill, Inc. (NYSE:CMG) plans to launch its largest advertising campaign ever this year, free burritos will certainly be missed by customers.
For long-term Chipotle investors, 2015 was not a particularly good year, with the stock plunging by over 20% due to disappointing financial results and uncertainty over the effectiveness of the company’s marketing campaigns. However, the decline represented a good entry point for investors that believe in Chipotle Mexican Grill, Inc. (NYSE:CMG)’s long-term potential. One of these investors is billionaire activist Bill Ackman, whose Pershing Square fund added a $235 million position to its equity portfolio during the third quarter. The positive news since the beginning of the year sent Chipotle’s stock higher and it is currently 12% in the green year-to-date. However, it is still 30% lower from the levels it had been trading at before the food safety issues emerged.
Disclosure: none
