Chipotle Has No Business Criticizing Rivals

(Bloomberg Gadfly) -- Some restaurant-goers care about the amount of preservatives or artificial flavors in their food. But pretty much every diner cares much, much more about whether that food will make them retch.

Which is why it seemed strange last week when Chipotle Mexican Grill Inc. CEO Steve Ells publicly chastised other restaurant chains for their food not being "clean" enough compared with the fare at his burrito chain. Hasn't Ells learned his lesson? 

Amid a media push last week to tout its preservative-free food, Ells launched into a tirade against moves by Panera Bread Co. and McDonald's Corp. to clean up their own menus. Panera, which hasn't posted a quarter of negative sales since 2008, shot back. CEO Ron Shaich told Business Insider that Ells and Chipotle "had more than their fair share of problems" and "shouldn't be throwing bombs." 

Shaich is right. Whether or not you agree Chipotle ever had the moral standing to judge other chains for the purity of their offerings, last year's food-safety debacle certainly stripped it of that right.

As the burrito chain struggles to regain sales, management would be far wiser to focus on revamping its own business and winning back customers, not throwing stones at competitors.

Chipotle could start by improving its technology, cleaning up its weakest stores, and reducing its customer wait times. Because as I've outlined here, the thing fast-food customers hate most (after getting sick) is waiting in line. 

It also needs to work harder at reforming executive pay. That subject drew new attention last week, after company filings revealed Chipotle gave Ells more than $15.7 million in compensation for a year in which sales fell 20 percent. 

Perhaps if Chipotle hadn't rewarded Ells so handsomely for presiding over the company's worst-ever annual performance, he would be a little more focused on minding his own business and not on attacking others. 

The company has taken small steps toward better corporate governance. It added four new directors and eliminated its co-CEO structure. While it hasn't split the roles of chairman and CEO, Chipotle's lead director will now oversee the CEO's annual performance review, starting in 2018. 

Also noteworthy is that officers didn't receive an annual bonus for 2016. And two-thirds of the stock compensation for Ells and other executives in 2017 will hinge on Chipotle's average closing stock price staying above $650 for 60 consecutive days. That's no small feat, given the shares have been stuck between $350 to $450 over the past year. 

The other third of stock compensation in 2017 will be tied to boosting comparable sales. For executives to get all of that portion of the payout, Chipotle must notch a three-year compound annual growth rate of 7 percent in comparable restaurant sales.   Of course, comparisons will be easier after a disastrous 2016 -- doing better than a 20 percent decline shouldn't be hard.

Still, despite all that progress on governance, Ells feels entitled to publicly spout off about competitors.

If his trash-talk were somehow convincing customers to come back to Chipotle, it might be justified. Instead, it just stirs up more reminders of Chipotle's struggles with its own food. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

1. Comprised of million in salary, with the rest mostly made up of stock awards.

2. Achieving a 60-day average stock price of will yield a payout; will yield a payout. 

3. The threshold for the three-year compound annual growth rate for comparable sales is which would yield of the payout. Comparable restaurant sales of 7% will allow executives to get 100% of the payout. 

To contact the author of this story: Shelly Banjo in New York at sbanjo@bloomberg.net.

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.