Digital drops an eye-opening stat
From day one, Niccol, the former Taco Bell chief, lamented Chipotle’s lack of awareness in the marketplace. Given his marketing background and the lifestyle icon status of Taco Bell, many expected Niccol to remedy this weakness. He has, and perhaps quicker than could have been expected. Chipotle’s digital sales boomed 66 percent in Q4, year-over-year, an acceleration from the 48 percent it saw in Q3. Digital sales totaled $158.6 million in the quarter and represented 12.9 percent of sales.
For the full year, digital sales exceeded $500 million and represented 10.9 percent of sales. Another stellar result: App downloads increased 72 percent, year-over-year, in 2018. “We continue to see strong interest from new, infrequent, as well as frequent guests at Chipotle,” Niccol said in a Thursday afternoon conference call.
Delivery sales increased roughly 13-fold compared to the fourth quarter of 2017. Niccol said Chipotle has seen very little guest overlap between its own in-app delivery and third-party delivery partner apps. And “as we continue to remove friction from the digital ordering and pickup process, we expect our delivery time advantage to continue to widen.” Pickup shelves and delivery pre-pay capabilities that will enable drivers to walk in, pick up, and walk out without any delays are being added.
“We're still best in class when it comes to speed, and the second piece is, our food is really great when it gets delivered,” Niccol said. “That burrito, it's really delicious. So if you give people delicious food in roughly 30 minutes at home while they're watching whatever they're watching, appears to be a good idea for our consumer.”
Chipotle also continues to stage-gate test its loyalty program with a national launch expected in 2019. Niccol said the chain is seeing light, lapsed, medium, and heavy users enroll. “But the thing that we’re most interested in that data that we get on this,” he said, “is our ability to then turn around and remarket Chipotle to influence people’s behaviors going forward.” Chipotle has been testing the platform in Phoenix, Kansas City, and Columbus, Ohio since early November.
Drive-thru is driving results
Drive thru is another thing pundits thought would never fly at Chipotle. Currently there are 10 restaurants with “Chipotlanes,” as the company is calling them. The initial test of the mobile-order pickup lane is showing promising results with a higher mix of digital sales and total restaurant sales, Niccol said. Chipotle plans to build “a few dozen more” in 2019 with a mix of freestanding and end-cap builds. CFO John Hartung said the company’s new restaurant investment this year will increase to an average of about $860,000 per new opening, mostly due to the further testing of the Chipotlanes. “The guest convenience with Chipotlane, along with the potential for superior economics, support allocating a portion of our portfolio to this new format,” he said.
Niccol broke down how they work.
Guests order ahead in the app or on Chipotle’s website. What it does is provide another access point at the restaurant where a customer doesn’t have to get out of their car—they just pull up to a window. An employee has a quick conversation with the guest. It’s a set pickup time. “And then what happens is, literally, it’s like, I’m here for my burrito. Out the window comes your burrito, and you never get out of your car,” Niccol said.
Arguably, it provides the fastest way to Chipotle in the company’s history.
As for how this will unfold, Niccol said Chipotle would need to find trade areas where, historically, it can add volume thanks to the access point. In other words, perhaps smaller footprint restaurants. It’s really a new-build effort as well. Niccol said Chipotle might do “one or two” remodel efforts, but the emphasis will be on fresh restaurants going forward.