Earnings

Digital Convenience Is Front And Center In Chipotle’s Q4 Push

Chipotle

Amid a push to make its restaurants more accessible to customers with digital technology, Chipotle Mexican Grill reported better-than-expected earnings results for the fourth quarter. The quick-service restaurant (QSR) chain reported sales of $1.23 billion and earnings of $1.72 a share compared with analysts’ estimates of $1.19 billion and $1.34.

During the quarter, Chipotle Mexican Grill CEO Brian Niccol noted in an earnings conference call, the company saw a 6.1 percent comparable restaurant sales growth — that included 2 percent restaurant transaction growth — along with restaurant-level margins of 17 percent. Overall, Niccol said, “the growth acceleration this quarter gives us confidence that our strategy to win today and create the future is working.”

At the same time, Niccol said, digital sales during the quarter reached $158.6 million and represented 12.9 percent of sales. In addition, Niccol noted that digital business went beyond half a billion dollars for the whole year, representing 10.9 percent of sales. But in terms of growth, he said digital sales grew by 66 percent year-over-year and accelerated 48 percent from the prior quarter. Sales for delivery orders rose approximately 13-fold compared to the fourth quarter of the prior year, with Niccol noting free bowl delivery promotion driving growth in the late portion of December.

Niccol said the company saw a residual sales lift extending beyond the offer. He also noted that, based on data shared by the company’s white-label delivery partner, the company typically has among the fastest delivery times in its system. But Niccol predicts that will improve with the company’s delivery prepaid capabilities as well as pickup shelves “that enable delivery drivers to walk in, pick up their order and walk out without any delays.”

The effort comes as the PYMNTS Restaurant Readiness Index found that 83.6 percent of consumers view online/app ordering as features that are important to a QSR’s success. At the same time, the index found that 74.4 percent of restaurant managers saw innovations that improve the customer experience as appealing. And the index also found that 62.4 percent of restaurant managers saw innovations that add convenience as appealing as well.

For Chipotle’s efforts to increase access, the company is looking into a new format for “digitally enabled convenience.” Niccol said that 10 restaurants are experimenting with a mobile pickup line that the company has dubbed Chipotlane. The pilot is “showing promising results,” he said, with a higher mix of digital as well as total restaurant sales. Heading into the future, he said the restaurant chain plans to continue testing the concept by opening a few more dozen of the lanes this year with a combination of freestanding and end-cap buildings. Of the concept, Niccol said, “these restaurants are a great extension of our digital system as they help to increase convenience and access to Chipotle.”

The Road Ahead

Niccol noted that the company opened the doors to 137 new restaurants in 2018 “with industry-leading returns.” And, in existing restaurants, he said the company completed the “big fix” and working on growing the reach of its digital system to provide more convenience and better access to diners. He noted that digitized make lines are in more than 1,000 restaurants and are on their way to coming to all locations by the end of this year. In addition, he said digital pickup shelves are in roughly 1,000 restaurants and the company is working to get them into all stores by the middle of the year.

When it comes to marketing, Niccol said the company launched a “For Real” marketing campaign last year that highlighted the company’s points of differentiation in real cooking techniques and real ingredients. The effort generated significant brand awareness through a media plan as well as programming, he said. In one case, the company published its entire list of ingredients for the public to read in Times Square — and through multiple social as well as digital channels.

The company also took out a full-page ad in The New York Times that emphasized that the hardest ingredient to pronounce at the chain’s restaurants is the company’s namesake Chipotle. In the next program iteration, the company plans to roll out a “Behind The Foil” campaign in mid-February. “It feels more like a documentary than traditional advertising,” Niccol said, adding it highlights the company’s fresh ingredients, food preparation and work of its team members.

In addition, Niccol said the company was pleased to see changes in behavior across customers of all frequencies with early user data and sign-ups from its loyalty test. He noted that the company is making changes based on the feedback that it has received so far and is working toward a nationwide launch this year.

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