How Chipotle is building a digital restaurant empire
What’s important here, however, is that Chipotle’s overall digital mix has been relatively stable for three quarters. But in the first quarter, the company’s highest-margin transaction – digital pickup orders – accounted for just over half of digital sales. In its delivery channel, around 40% of orders are placed through Chipotle’s app or website (the rest went through a handful of partners).
Chipotle took 4% more in first quarter delivery prices to offset cost pressures. CFO Jack Hartung said that while this doesn’t get a delivery transaction where it offers the same margin as an in-store transaction, and certainly not an advance order, “it’s getting very, very close. . “
“Close at hand,” he said.
“We’ve made a lot of progress over the past year and we’ve tracked those increases along the way,” he said. “We have seen acceptable resistance and we have also seen what people changing channels look like. Because it looks like our order is progressing when we see customers maybe a bit resisting the higher prices in the delivery channels. “
This last point is something that Chipotle is courting. Before the 4% hike, shipping Chipotle cost customers 13% more. Again, the rebound from a 17 percent price increase is “acceptable resistance,” Hartung said, because it doesn’t block customers and leave them without options. Instead, they are moving towards value-driven channels.
“We provide a lot of access, a lot of convenience with a very powerful brand position behind us, ”said Niccol. “And that’s why I think you see our pre-order activity continue to grow, our white label or delivery activity in our app continues to grow as a percentage of the delivery opportunity, and I think it’s just an ongoing brand function. to resonate. “
And one of those, more and more, is Chipotlanes. As of March 31, Chipotle had a total of 196 stores with early order pickup lanes, including five conversions. 12-month Chipotlane restaurants continue to generate 17% overall digital sales compared to non-Chipotlanes. More specifically, upcoming orders are almost 80% higher. And delivery – Chipotle’s lower margin transaction – is about 30% lower.
These are metrics that Chipotle will be looking for, especially as these units will debut with 15% higher sales.
The brand opened 40 restaurants in the first quarter, more than double the number brought to market this time last year. Twenty-six of them included a Chipotlane. The company plans to open around 200 new locations this year, over 70% of which include this feature.
BTIG analyst Peter Saleh sees a broad lead. “We continue to believe that there is a substantial opportunity for Chipotle to convert existing restaurants to Chipotlanes and this could be another layer of sales in the years to come,” he said in a note Thursday. “We estimate that Chipotle operates approximately 400 independent restaurants and close to 1,600 restaurants, many of which may be candidates for conversion … Management has indicated that owners have been receptive to these conversions, but for units towards the end of their the duration of the main lease rather than the beginning. “
Its estimate: up to 1,000 driving spaces by 2025.
One thing to watch out for, too: Chipotle recently opened a restaurant in British Columbia in Surrey, which marked its first new Canadian store in three years. Hartung said he signaled the start of an accelerated Canadian push, which will include its first Chipotlane opening in late summer.
Ultimately, the brand believes it can open “at least a few hundred restaurants in Canada” as their unit economy approaches American stores.
Niccol said the Chipotlanes “revolutionized the experience from drive-thru to advance ordering for pickup transactions” at the brand.
And it really is a developing tri-fold digital monster. The asset base (led by Chipotlanes and possibly more digital-only stores), the development of digital exclusive menus and the previously mentioned rewards growth.
Chipotle continues to tinker with data and its ability to engage customers. “Communications with our clients are tailored individually so that specific client activities elicit targeted responses,” said Niccol. “Each digital message can vary throughout the customer’s buying journey, such as the latest promotional offer on a new menu item or a more targeted offer to attract a customer who hasn’t visited our restaurant for a while. “
For example, customers received communication about the launch of Chipotle’s quesadilla with their favorite protein based on their order history.
“Many new users who come into the business through the quesadilla proposition, and then our existing customers, we also see them using this quesadilla platform as part of a new restoration opportunity,” Niccol said. “So that was actually our strongest new customer penetration in March, which I think is just a testament to one, people are coming back to the dining rooms and two, I think, a truly significant innovation around the quesadilla. ”
Chipotle’s digital business has maintained an 80-85% execution rate in recent weeks.
“We’re going to continue to use our system, call it rewards, quesadillas, to push people further and more engagement on our digital platform for the occasions when it makes sense, ”Niccol said. “So in places where we’re more open we’ve resumed our dining business and our digital business is on hold, I would say it’s actually our digital business is operating from a position of strength. And then the places where it’s slower for dining rooms to come back, thank goodness we have such a strong digital business. “
Results, sales, future growth
Chipotle’s revenue rose 23.4% to $ 1.7 billion in the first quarter. Comparable store sales rose 17.2% as the chain launched the onset of COVID-19 in 2020. Even so, over a two-year stack, Chipotle’s rosters are up 20.5% account given the 3.3% increase in the first quarter of 2020.
Diluted earnings per share were $ 4.45. The brand also closed five restaurants against its 40 openings during the period.
As of March 31, 2021, Chipotle had nearly $ 1.2 billion in cash, investments and restricted cash, and no debt. Restaurant operating margin was 22.3% in the first quarter, compared to 17.6% year-on-year. The improvement is mainly due to leverage resulting from increased sales and menu prices, partially offset by increased delivery costs and wage inflation, the company said.
Going forward, Chipotle expects Q2 comps to hit the high 20-30% range as the industry continues to benchmark some of the toughest months in the history of the sector.