Fast-casual Chipotle builds booming digital business
Chipotle Mexican Grill reported impressive sales growth during its final quarter of 2019. Sales surged 17.6 percent to $1.4B supported by an impressive mix of store openings, menu enhancements and a steady hand in its digital game. Comparable restaurant sales increased 13.4 percent on strong store performance, including 8 percent traffic growth at its stores open more than one year. The fast casual reported 4Q adjusted diluted earnings per share of $2.86, a 66.3 percent increase from 2018’s fourth quarter.
For the year ended December 31, Chipotle posted revenue of $5.6B, a robust increase of 14.8 percent from the prior year. Full-year comparable sales yielded a 11.1 percent increase above 2018. Traffic grew 7 percent. Adjusted diluted earnings per share came in at $14.05, a 55.1-percent increase.
Booming digital business
On an earnings call, Chief Executive Officer Brian Niccol reported that the Mexican-style chain posted digital sales of $282M in the quarter. “Over the course of 2019, we significantly upgraded our capabilities by completing the rollout of digital pickup shelves, digitizing our digital make line and expanding our delivery capabilities to over 98% of our store base,” he said. For Chipotle, digital is now a $1B annual business.
The chain is just getting started: executives are testing new design prototypes that enhance digital pick-up areas and make to-go and delivery sales more seamless experiences. The next vision is an in-store digital portal. Select stores are currently testing variations of the new digital transformation experience. “Open views and front row seating provide direct lines of sight into the kitchen, where crew members hand-prepare fresh food with real ingredients every day,” said the company in December.
A walk-up window has been installed at the Chipotle restaurant across from Wrigley field in Chicago,. in which there is also a beverage grab-and-go case near the entrance. Cincinnati and two new units in Phoenix will feature the new, evolved layout. Overall, the fast-casual chain is applying the design to three different real estate types in upcoming new stores as well as retrofitting two existing Chipotle locations
Chipotle rewards members now total 8.5M, and the fast casual is looking to leverage digital marketing to engage these customers. Over time, Chipotle is looking to better utilize data gathered on their guests for added personalization. The chain’s marketing programs should reap the rewards. With 8 percent of the comp coming from incremental store visits, executives are eager to optimize the rewards program.
Popular additions to the menu also boosted 4Q. Niccol said that Chipotle lifestyle bowls, carne asada and the new Super Greens salad mix energized sales. In fact, the impact of carne asada and overall changes to price and mix helped elevate comparable sales performance by 5.4 percent for the quarter.
Due to supply challenges, carne asada is finishing its limited-time promotional run; however, executives are exploring ways to bring back the “protein” as a permanent addition. Food cost during the quarter was impacted adversely by about 70 basis points due to the pricing of carne asada, just $0.10 to $0.15 incremental cost over regular steak supply.
New menus are entering the pipeline this year, after they finish various testing processes. “Queso Blanco, quesadillas and beverages are currently being tested in various markets,” Niccol added. “In fact, Queso Blanco has recently been validated via the stage gate process, allowing for a national rollout and replacement of our existing queso shortly.”
Store economics, employee investment
Stores are performing well and AUVs (annual unit volumes) are reaching $2.2M with a 20.5 percent operating margin. Chipotle executives still consider the 22-percent restaurant margin achievable, said Jack Hartung, chief financial officer. This past year saw Chipotle absorb higher costs for avocados during the summer and take on higher carne asada costs with a minimal price bump of $0.50 over regular steak pricing.
Chipotle’s investments in its employees appear to be paying off with turnover reduced by approximately 35 percent. The biggest and most impactful investment has been in enhancing the General Manager position. With regard to employee benefits, Chipotle is upping its game with debt-free degrees, crew bonuses and mental health benefits to help its 83,000 employees and increase retention. In summary, the Chipotle brand is differentiating itself by crafting superior benefits packages, suggested Niccol.
The Mexican-style fast-casual chain appears to be on track, with investments and strategies that are producing astronomical results. Recently, Niccol was named Restaurant Leader of the Year by Winsight’s Restaurant Business Magazine, an honor that puts him in good company with the likes of Ron Shaich, Panera Bread founder, and Danny Meyer, founder of Union Square Hospitality, to name a few. To read more about the award, navigate here.
Photo credit: Chipotle (featured preview, inline)
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