Chipotle taps marketing-savvy Taco Bell CEO for top job

Chipotle has appointed Taco Bell’s CEO Brian Niccol to the top spot

Customers should not expect nacho fries to show up at Chipotle Mexican Grill Inc. now that Taco Bell’s former chief Brian Niccol is taking the helm, but they can brace for improved service and more aggressive marketing efforts to bring back lapsed customers.

Chipotle CMG, +15.05% announced late Tuesday that Niccol would be filling the CEO vacancy, as CEO and founder Steve Ells moves to the executive chairman position. Shares shot up more than 10% after the news was announced and are up 15% in Wednesday trading to mark their biggest gain in four and a half years.

Niccol joined Taco Bell in 2011 and has been CEO since January 2015. Chipotle’s announcement notes Niccol’s leadership in bringing new breakfast business to Taco Bell and transforming its digital capabilities for both social media and mobile ordering.

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Before joining Taco Bell, he held positions at Pizza Hut, including chief marketing officer. Both Pizza Hut and Taco Bell are Yum Brands Inc. YUM, +0.59% chains.

BTIG analysts emphasized the differences between Taco Bell and Chipotle, from the business model (Chipotle is company-owned while Taco Bell is largely franchised) and sales drivers, with Taco Bell focused on value and limited-time offers. But there’s one important thing Niccol could bring with him.

“We believe advertising is a key lever that Mr. Niccol could utilize from his Taco Bell experience, though Chipotle would have to do so with a considerably smaller ad spend ($106 million vs. about $415 million for Taco Bell last year),” BTIG analysts led by Peter Saleh wrote in a note.

BTIG has a neutral rating on Chipotle and Yum shares.

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Chipotle has released a number of ads in recent months, but none has caught on in the way its “Scarecrow” ad did a few years ago. (A version of the ad is available here.)

“While an effective marketing campaign to address the brand’s post-food crisis impairment is necessary, we have difficulty in seeing a near-term solution or pointing to a strategy that could result in a meaningful step-up in Chipotle’s current low single-digit trajectory,” wrote Wedbush analysts led by Nick Setyan.

Likewise, BTIG analysts don’t see the new appointment leading to “any material change in fundamentals until at least 2019.”

Wedbush is “unconvinced” that Niccol’s hiring is a good fit for Chipotle because of the differences in business model.

“Given our expectation of at least mid-single-digit labor inflation in 2018 and 1%-to-2% food inflation, we continue to believe 2018 guidance of 17.5%-to-18.5% unit-level margins sets a high bar,” Wedbush wrote. “We also now see risk to expected marketing spend of about 3% in 2018, and a similar estimate in 2019, with higher spend another potential risk to unit-level margins.”

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Wedbush rates Chipotle shares neutral with a $285 price target.

SunTrust Robinson Humphrey analysts led by Jake Bartlett say the new hire “gives [them] greater confidence that service initiatives will be both aggressive and effective, driving an acceleration in same-store sales.”

SunTrust rates Chipotle shares buy with a $340 price target.

Chipotle shares are down more than 31% for the last year while the S&P 500 index SPX, +1.28% is up 14.6% for the period.

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