As digital sales continue to skyrocket and a new rewards program takes hold, Chipotle Mexican Grill beat analysts’ expectations for second-quarter earnings. The quick-service restaurant (QSR) chain reported revenues of $1.43 billion and earnings per share of $3.99 compared to estimates of $1.41 billion and $3.76 per share.
The chain’s digital sales grew 99.1 percent and accounted for 18.2 percent of sales in the second quarter, while in the first quarter, digital sales grew 100.7 percent to represent 15.7 percent of sales. In a call with analysts on Tuesday (July 23), CEO Brian Niccol said delivery remains a “key driver” of the firm’s digital growth, given enhanced app and website capabilities along with expanded reach. He also noted that the QSR still sees residual lift in delivery sales that last beyond any promotion, and that there is little guest overlap between the company’s in-app delivery and third-party delivery apps.
Niccol also pointed out that the company’s rewards program, which rolled on March 12, “has exceeded our expectations with over five million enrolled members.” Early results indicate that members are increasing frequency after joining the program. “The rewards program gives us a currency that we can use to incent behaviors, and is a key enabler of our digital ecosystem moving forward,” Niccol said. (Through the program, diners receive 10 points for every dollar they spend and earn a free entrée when they accrue 1,250 points.)
Marketing and Menu
Niccol also noted that the quarter benefited from multiple “strategic promotions” that increased the visibility of the company’s brand and helped to expand access. The company’s free delivery promotion to celebrate National Burrito Day on April 4 tapped into social and digital experiences. Niccol said it helped make for “the highest sales day in Chipotle’s history.” The event was also an opportunity to acquire customers and transactions by introducing them to the convenience of delivery.
On the menu side, Niccol noted the company also continues to experiment with new items in “various stages of development.” The farthest-along product is carne asada, while the company is also gathering feedback on its quesadilla pilot. At the same time, Niccol said that new ovens are helping to improve the quality and taste of the quesadillas and could potentially be a platform for other new menu items.
The Road Ahead
With dedicated digital order food prep lines in nearly 2,000 restaurants and mobile order-pickup shelves in relevant locations, Niccol said Chipotle is modernizing and “making the customer and team member experience more efficient” as it builds more love for the brand. And with more diners coming to the chain, he said it was “imperative” for the company to provide a great guest experience.
The executive also pointed to the company’s new crew bonus program. Through the effort, hourly employees have the opportunity to earn up to an extra month’s pay per year based on a restaurant achieving food safety and performance goals. Niccol also pointed out that manager and crew turnover has come down nicely over the past year, while food is prepared more consistently and the result is better executed.
Niccol believes the company is still in the early stages of many key initiatives, and, by continuing to execute and improve, he said that “Chipotle is well-positioned for future growth.”