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SEC Calls Out Chipotle For Trying To Claim $4M In Profit From Free Burritos Promo

It’s been a strange year for Chipotle Mexican Grill and it doesn’t seem to be getting any better.

The popular chain survived the aftermath of a norovirus outbreak, then forced to close down every store amid health inspections, and then gave millions of dollars worth of free burritos away to keep people interested. We also can’t forget about the rewards program, “Chiptopia” or the animated film, “A Love Story,” which was nearly swept under the rug.

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Now the Securities and Exchange Commission is getting involved, according to Bloomberg. In a written letter, dated July 1, addressed to Chipotle Mexican Grill, the SEC responded to Chipotle’s letter which addressed the effect the coupons for free burritos — which totaled $4 million — had on Chipotle’s sales.

On June 22, Chipotle wrote the SEC looking for a way to make it seem like spending — or wasting — $4 million on free burritos for customers was positive for sales.

Chipotle’s initial inqury to the SEC read:

“In light of the significant promotional activities begun in the first quarter of 2016, such as coupons issued for free products, please revise your revenue recognition policy to describe your accounting for such promotions and sales incentives.”

Just to be clear, giving away free food or product — just in order to stay relevant — is never a good look if you’re looking to positively impact your sales. Furthermore, the amount of money that product could have generated by being rightfully sold, will probably never be seen again.

The SEC responded gracefully, but basically told Chipotle they were trippin’.

“The amount of the accrued liability for free food offers was approximately $4 million as of March 31, 2016We do not recognize any revenue on free food coupons issued to or redeemed by customers,” the SEC letter read. It continued: “We will revise our accounting policy in future filings to describe our accounting for our promotions and sales incentives beginning with our next 10-Q filing, to include additional disclosures similar to the following: The Company recognizes revenue, net of discounts and incentives, when payment is tendered at the point of sale.”

Each week, the future of Chipotle is looking more and more bleak.

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Fast Food

Everything You Need To Know About Chipotle’s Rewards Program

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The few Chipotle lovers who are still loyal after the E. Coli scares can rejoice. Chipotle has created a summer loyalty program dubbed Chiptopia which is designed to reward the most loyal customers for three months.

Unlike most rewards programs Chiptopia is not based on money or points, but frequency of visits. The complex rewards program rewards loyal customers who make multiple paid visits in a month, but it also has three status levels with different rewards.

Customers who visit a Chipotle in July will be able to pick up a Chiptopia rewards card and earn free chips and guacamole with participating purchase. The three levels are mild, medium and hot which sounds simple enough, but Chipotle added some math into the rewards system.

Every fourth, eighth and 11th purchase including redeemed rewards each month gets you one free entree and a new status level. But don’t think you can stack your purchases over three months, your status goes back to zero at the end of each month and the rewards also expire 30 days after you earn them.

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To complicate the system even further, there are bonus rewards if you achieve the same status each month.  Customers who achieve Mild status all three months earn an additional free entree. Those who reach medium all three months earn $20 in online Chipotle merchandise. Super-loyal customers who achieve Hot all three earn catering for 20.

The summer loyalty program appears to be a sort of test drive, at least according to a statement from Mark Crumpacker, chief creative and development officer at Chipotle. “While Chiptopia Summer Rewards lasts just three months, we will be carefully listening to our customers and using what we learn as we consider the design of an ongoing rewards program,” said Crumpacker.

The internet has already caught wind of the rewards program. Some loyal burrito fans appear to be beyond excited for the rewards program.