- Hollis Johnson
- Queso’s debut didn’t save Chipotle from falling short of analysts’ expectations. However, executives are touting the new menu item – which was trashed by many customers – as a success. Customers who do enjoy Chipotle’s somewhat-grainy queso tend to order it as a burrito or burrito bowl topping. By marketing queso as an add-on, not as a dip, Chipotle still has the potential to incrementally grow sales with queso.
Chipotle’s first quarter serving queso was a huge swing and a miss. But, executives are refusing to change the maligned dip’s recipe – and they’re making the right decision.
The company’s stock plummeted up to 8% on Tuesday after it missed analysts’ predictions for the quarter. Chipotle’s revenue reached $1.13 billion, falling short of the $1.14 billion estimate.
This was the first quarter that Chipotle had queso on the menu. During its last earnings call in August, the chain had sold the cheesy dip to investors as a central player in the chain’s potential turnaround.
So far, the queso has failed to step up to the role.
- Hollis Johnson
“Many of the new menu items – such as the much-anticipated queso – have fallen flat and failed to provide a sustained boost to sales,” Neil Saunders, managing director of GlobalData Retail, said in an email on Tuesday.
Customers’ reaction to queso has been overwhelmingly negative, especially online.
“Very disappointed in the Queso,” reads one of the many negative comments on Chipotle’s Facebook page. “I have not met one person who liked it.” Another person went as far as calling the queso “dumpster juice” on Twitter.
Data supports the social media backlash. The company confirmed that just 15% of orders include queso – less than half of the 40% that include guacamole. And, Cowen found that queso-related traffic died off after peaking the first week it was available.
However, when it came to overall financial struggles, executives blamed subpar sales and revenue on hurricanes, higher avocado costs, and a data breach. The one thing that was not blamed was queso.
Chipotle reported that queso actually added 6% to comparable sales when the menu item launched nationally in September. So far in October, queso has added 4% to 5% in comparable sales.
According to the company, queso-related sales growth came both from customers visiting the chain after a long absence or for the first time, as well as regular customers trying out the new menu item.
Notably, while roughly half of Chipotle customers said that the chain’s queso is better than the competition’s offerings, 93% said they enjoy Chipotle’s queso as a topping on burritos and bowls. In other words, customers love the chain’s queso as a flavor – just not necessarily as a dip.
Most people’s biggest problem with Chipotle’s queso is the texture, according to a company spokesperson. While that’s a pretty major problem, it also highlights an opportunity for Chipotle to use queso to grow sales.
A survey by financial services firm Mizuho found that most people who were ordering queso weren’t ordering it for the typical use – as a dip with chips. In fact, only 3% of customers were buying queso and chips.
The textural shortcomings of Chipotle queso are disturbingly obvious when eaten as a dip. On the other hand, as a warm cheese topping, you can enjoy the flavor, which is actually quite good – smokey, with a pleasant burn. In fact, in Business Insider’s original review of the queso, we recommended it as a replacement for Chipotle’s lackluster cheese in your burrito, not as a dip.
Mizuho estimates that the ingredients for a $1.40 queso meal addition cost Chipotle just 19 cents. For comparison, guacamole costs Chipotle roughly 75 cents to make (in a period of high avocado prices), and $2.45 for customers to order.
Is queso the game changer that Chipotle promised? No. But, it does have the opportunity to help turn business around at the company – as long as customers accept it as a cheesy burrito ingredient, and not the goopy Tex-Mex classic many people expected.