It's been a brutal couple of years of Chipotle Mexican Grill (CMG) . Over the last three years, shares are down more than 50%, but the company is hoping a new CEO will change all that.
On Wednesday Chipotle announced its current CEO Steve Ells will become the executive chairman of the company when the search for a new chief executive is complete. Once done, Ells will stick with the company and focus on innovation.
This isn't completely unheard of, although the timing is different than in other cases. Starbucks' (SBUX) Howard Schultz moved from CEO to executive chairman, as did Alibaba's (BABA) Jack Ma. While Starbucks stock is not exactly flourishing at the moment, it and Alibaba were doing much better then than Chipotle is now when they went through their transitions.
Notably, let's also not forget about activist Bill Ackman, who has a position in Chipotle. Was he a catalyst in the move? Or had Ells finally had it with the CEO role, considering how difficult it must have been to manage a company plagued by food-safety issues?
We may never actually know. But one thing we do know is that Wall Street likes the move. At least when it comes to the initial response. After closing at $285.86 Tuesday, shares were up 5.65% to $302 in premarket trading Wednesday. Within the first few minutes of regular trading, though, shares were only up 5.4% to $301.25.
While it may seems like a slap in the face to the guy who founded and ran Chipotle for years, the market is probably right to rally the stock Wednesday. Think about it. Chipotle is known for its fresh food operations using natural ingredients. While this in and of itself is a good idea, there's a reason it's so hard to replicate on a large scale. Price is one factor, but health is another huge consideration. It's hard to keep these products fresh and a tainted batch of anything can make customers sick in a hurry.
Chipotle never really recovered from its bout of E. Coli and norovirus issues that hit a few years ago, as small incidences have popped up from time to time since. This despite overhauling its food safety supply chain. Further, it's hard to completely prevent these issues when the ones actually preparing the food often feel underpaid and overworked.
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So where do we go from here? Chipotle will (hopefully) bring in a strong operator to handle the business. Ells is good with concepts and product offerings. But his strongest attributes don't stand in running a public company -- at least in my view. Maybe someone from Panera would be a good fit, seeing as though the fast-casual chain also utilizes a lot of fresh ingredients and was really hitting its stride before being bought out by JAB Holdings in a $7.5 billion deal back in April.
While the short-term could still be bumpy for Chipotle -- remember how long it took Twitter (TWTR) to find its CEO? -- this should be good news in the overall grand scheme.
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