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Free Burritos Lure Chipotle Loyalists, But Will Sales Follow?

by Reuters / / Source: Reuters
Image: A Chipotle restaurant
A Chipotle restaurant is seen on March 5, 2014 in Miami, Fla.Joe Raedle / Getty Images file

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Free food is the backbone of Chipotle's strategy to lure back "top loyal" customers, who dine at the chain at least 25 times a year and account for up to 20 percent of its sales.

Cesar Trejo broke his Chipotle habit after the chain's string of food safety lapses last year. This week, a free food offer lured him back, along with the urging of three friends who had returned without getting sick.

"I saw all the news. I thought, 'I have to wait'," said Trejo, 32. He used to eat at Chipotle Mexican Grill outlet near his job in downtown Los Angeles two to three times a week, until highly publicized reports linking the burrito seller to E. coli, salmonella and norovirus outbreaks scared him off.

Image: U.S. President Obama has lunch at the Chipotle Restaurant in Washington
U.S. President Barack Obama has lunch at Chipotle Restaurant with Lisa Rumain (L) and Shelby Ramirez (R) before he attends the White House Summit on Working Families in Washington, June 23, 2014. REUTERS/Larry DowningLARRY DOWNING / Reuters

And wait he did. Monday marked the first time in three months that Trejo had set foot in Chipotle. He paid for a drink and used a coupon to get a free steak burrito bowl at the restaurant, which was relatively quiet during the lunch rush.

ITG Investment Research analyst Joe Fersedi said free food coupon redemptions appeared to spike in the second week of February. That was when credit card transactions under $4, which would be the cost of a free entree with a paid drink or chips, briefly topped 10 percent before returning to their historical level of around 2 percent in late February, said Fersedi.

"We have to wait to see if management turns on the 'promotion spigot' again," following last week's brief closure of a Massachusetts restaurant due to sick employees, Fersedi said.

Chipotle executives are expected to update investors at a conference on Wednesday. Nine analysts polled by Consensus Metrix estimate that Chipotle's February sales at established restaurants fell 23 percent, following a 36 percent drop in January.

"Sales are still down quite a bit, but they've improved meaningfully," said Fersedi, who declined to share traffic and sales estimates.

Give a loyal customer a free burrito that does not make her sick and she'll come back again and tell friends to do the same, said Tushar Parashar, marketing strategist at Vivaldi Partners Group.

"People who are seriously loyal are easy to win over," Parashar said. Casual customers concerned about a brand's health and hygiene are not so easy. "A free burrito is not enough to get you to come back," Parashar said.

"Chipotle needs months and months of clean bills of health before they put this in their rear view mirror," said Ashley McCown, president of Solomon McCown & Co, a crisis communications expert.

Read More from CNBC: Chipotle Shares Dip 4 Percent in Q1

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