Chipotle returns to last year’s sales levels with digital-sales boost: 2Q financial results
Order-ahead pickup now accounts for more than 25 percent of sales
Chipotle Mexican Grill has been leveraging its digital channel to recapture sales to last year’s level, according to the fast casual’s second-quarter 2020 financial results. While comp(arable) sales declined 9.8 percent from last year, June, which was part of 2Q, showed a 2 percent comp increase. In 2Q, digital sales totaled $829.3M, up 216.3 percent form last year and accounted for 60.7 percent of the sales mix, helping boost a gradually improving comp sales performance.
Total revenues increased 4.8 percent from last year to $1.4B. As digital sales have decelerated to make up half of the chain’s sales in July, order-ahead has become a bigger piece of the digital pie. Order-ahead pickup, which is more profitable than delivery, now accounts for more than half of that digital business. Also, what Chipotle executives have found in its customer acquisition is that some who have ordered from the Chipotle mobile app for delivery have discovered the convenience of order-ahead, as well as its reduced cost compared to delivery.
How Chipotle rewards, delivery factor into rebound
Rewards members now total 15M just 15 months after Chipotle launched the loyalty program and place 70 percent of all digital orders. Loyalty customers factored significantly in the success of the rebound of Chipotle’s sales. A recent analyst call diving into 2Q results shed more light. CEO Brian Niccol pointed out that digital orders are quite sticky, and now that the chain has insight into purchasing behavior, Marketing has the ability to steer customers to incremental occasions or higher ticket via the mobile app.
In July, in-store orders decreased 37 percent month-to-date, while order-ahead pickup and delivery increased 140 percent and 125 percent, respectively, from last year. Behind a strong advertising push, Newport Beach, Calif.-based Chipotle brought in additional third-party delivery partners, including Uber Eats and Grubhub, while keeping DoorDash as its only white-label partner.
Although Chipotle opened up delivery ordering to third parties, customers continue to use the mobile app; the restaurant chain’s management team expects to see much of that third-party delivery business to become incremental. Existing Chipotle customers have a big incentive to use the Chipotle mobile app for placing delivery orders, noted Niccol. Through the Chipotle mobile app, fees may be more attractive than third-party delivery and customers are able to earn rewards.
Chipotle’s opportunity in order-ahead, Chipotlanes
An increasing amount of restaurant chains are embracing order-ahead and order-ahead drive-thru. Chipotle has the benefit of being able to leverage both access points. According to a study conducted by Rakuten Ready, order-ahead drive-thru can increase daily sales per store by $7K on average.
Out of the 37 stores that opened in 2Q 2020, 21 were Chipotlane stores. Jack Hartung, Chipotle’s chief financial officer, indicated that the comp base of Chipotlane stores that opened prior to COViD-19 drove sales 10-percent better than non-Chipotlane stores during the opening period. Moreover, pandemic-era Chipotlane openings run 30-percent higher in sales than the non-Chipotlane average.
Chipotle saw its 100th Chipotlane open in Columbus, Ohio. Hartung also reported that in July, three new Chipotlanes had opened, and an additional three stores had been relocated to accommodate a Chipotlane. The digital mix of these order-ahead drive-thru restaurants totals 60 percent, which is comparable to the 2Q mix, with two-thirds of that business as order-ahead, which is more profitable. He added that in 2021, the chain has targeted more than 70 percent of new restaurants to be Chipotlanes.
Digital channel supports menu innovation
The digital channel also provides for a way to continue to innovate the menu. For example, a quesadilla test is currently being conducted through the mobile app only. Because Chipotle uses a digital kitchen format in which there is a separate prep line for digital orders, the test item will not impact the prep line that customers experience in-store; it also makes the testing process better for team members who get to prep a new test item away from the main ordering queue. “It opens the door for additional innovation,” said Niccol.
Chipotle expects to continue to innovate and launch one or two new menu items per year. Currently, a Cilantro-Lime Cauliflower Rice is in test. Plus, Niccol touted the Mexican-style chain’s previous experience with the current version of the Queso Blanco, which was reformulated. For that product, marketing executives were able to create a data-driven program to reach out to previous Queso users to propel trial of the new Queso.
Photo credit: Chipotle Mexican Grill (featured preview image)
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