Broadly, Chipotle is relevant in more eating and dining occasions than it was in the past, thanks to digital. It’s made the channel more convenient in recent months with easy ordering in its app and through website enhancements, such as unlimited customization, contactless delivery, and group ordering. Chipotle announced last week a carside pickup pilot in San Jose, California.
Additionally, Chipotle’s asset base reflects its evolving business. Niccol said the company is in the early stages of testing “alternative formats,” like its first digital-only restaurant that opened outside West Point.
The new prototype, dubbed “Chipotle Digital Kitchen,” requires customers to order in advance via its app, website, or through third-party delivery. Food is then picked up in a lobby designed to mirror the sensory experience of a traditional Chipotle. It also serves large catering orderings for pickup in a separate lobby with a dedicated entry.
Niccol said this allows Chipotle to enter more trade areas that wouldn’t support a full-size restaurant, and unlock flexibility with future expansion. “It’s early days,” he said, “but this location has outperformed our expectations thus far.”
There’s another trend to consider. During Q4, about half of Chipotle’s digital sales flowed from order ahead and pickup transactions, or “digital pickup orders,” as the brand calls them. The remainder came from delivery. The delivery reality challenged restaurant margin a bit, as it came in at 19.5 percent—an increase of 30 basis points, year-over-year. Higher delivery costs were the culprit.
In response, Chipotle implemented several delivery menu price differentials with the weighted average right around 13 percent, CFO Jack Hartung said. “We've seen modest resistance thus far and we'll continue to monitor and adjust pricing as appropriate at the market level or at the restaurant level,” he said.
One route to soften the issue is the store model itself. The fast casual’s “Chipotlane” unit has producted a digital gap (versus non-Chipotlane restaurants) around 10 percent, driven “entirely by higher-margin digital pickup orders, Hartung said. Also, these stores open close to existing restaurant AUV right out of the gate. Historically, Chipotle restaurants start in the high- to mid-80 percent range of sales before maturing.
The brand isn’t wasting time trying to capitalize. It opened 61 restaurants in Q4, and 42 of them had Chipotlane order-ahead windows. For the entire year, Chipotle debuted 161 restaurants, with 100 offering the feature.
Chipotle predicted 150–165 openings for 2020 before COVID arrived. It got to the high-end, all challenges throw into the pot.
At 2020’s close, Chipotle had 170 Chipotlanes in the system, including five conversions. “These results reaffirm our strategy of an accelerated pivot toward Chipotlane insight,” Hartung said. “Not only will this enhanced customer access and convenience, but it also helps increase new restaurant sales, margins and returns.”
While 62 percent of new restaurants in 2020 offered a Chipotlane, the brand’s goal for 2021 is closer to 70 percent. And this is against 200 openings. The brand also plans to remodel or relocate 10–15 restaurants so it can add a Chipotlane.
Niccol said the brand is optimistic it can bring these “to every trade area in the United States that we think makes sense.”
“I think we've talked about that as, hey we're accelerating, we're going to get back above 200 [openings a year]. We're within striking distance of where the max level of development we did in the past [250 or so]. And so, the economics will create the new restaurant openings, are opening really strong Chipotlane continues to perform,” Niccol said.
He added you’ll continue to see Chipotle experiment with digital-only stores, as well as Chipotlane-only locations without dining rooms.
Niccol hinted at this latter option in December. He said the brand was plotting one in Kansas City—an older market. The key there, as Niccol previously noted, is digital, accessibility, and ways to leverage both, are reopening trade areas Chipotle once thought fully saturated. Getting to 250 openings a year will be a combination of expanding reach and also infilling mature markets with digital-first designs built to extract more dollars in areas that otherwise would have given Chipotle pause.
The ability to pivot to a digital proposition or an on-site proposition, in other terms. And the fast track to 6,000 restaurants (the vision expressed by executives in recent months), or about double the 2,768 it had as of December 31.
Like he did in December as well, Niccol spoke briefly about international expansion, which really hasn’t been on the table for some time. He said they’re seeing success in Canada and have “some plans in place for places that we already have our foot in the door.”
“So think of the U.K., France, specifically, and so you’re going to see us starting to really use kind of our stage-gate process to move those markets along and then we’ll evaluate other regions accordingly,” he said.
Chipotle has eight locations in the U.K. and 23 in Canada. Previously, Chipotle tried to grow in France (2012 to start) and German (August 2013 was the first) a shot. But it hit roadblocks. Press reviewers called the food overpriced. Obviously, the dynamic has changed overseas, especially in terms of delivery. “When we've done some research, what is clear is people love the purpose of food with integrity, they love the customization, they love the food and frankly the whole value proposition, I think has led us well beyond the United States,” Niccol said.
However, even with all these tangible changes in motion, the full business of Chipotle—both make-lines and Chipotlanes as an access point to digital, is “just really winning economics,” he said.
And to that end, there are plenty of sites available in the U.S., and more coming up as the COVID landscape settles. The brand wants not only to reach 6,000 stores, but to do so with AUVs in the $2.5 million range with margins at or above 25 percent. That would imply more than $15 billion in revenue.
“All of which is a question of when, not if,” Niccol said.