This growth topic surfaced Thursday during Chipotle’s presentation at the Raymond James North American Equities Conference. The brand has nearly $1 billion of cash on its balance sheet.
So early on, even when sales slid 30–35 percent, Chipotle had capacity to get on the front foot of a post-COVID gameplan. “We had enough of a balance sheet that we knew that we can continue to grow while others were pausing,” CFO Jack Hartung said.
He added building Chipotle’s pipeline is actually going better than it would have absent coronavirus. “And you hate to say that COVID—that there’s a silver lining to it, but there are things that you can take advantage of while you’re navigating through this change,” Hartung said.
With that, expect upward movement in Chipotle growth, although Hartung said it was too early to toss a number at the board. Historically, Chipotle’s yearly high watermark was in the mid-200s (80 in Q4 2019 was the most in brand history, by quarter).
Chipotle had 2,408 restaurants on December 31, 2017 and 2,491 a year later. It’s added 178 since, but 165 of those have come since March 31, 2019.
Hartung said Thursday he envisions Chipotle, in a “couple-of-year period,” getting back to that mid-200s pace. That would be nearly 100 more projected openings per calendar than Chipotle planned for 2021 before the crisis hit.
From 2014 to 2015, Chipotle grew by a net of 216 locations. The next year, it was 227. It then slowed to 173, 83, and 130 as the brand worked its way back from 2015’s food-safety woes. The company's broad-view goal is 5,000 domestic restaurants.
Hartung said Chipotle’s growth challenge will boil down to staffing as much as real estate. Typically, the chain promotes about 80 percent of managers from within. So building a crew and hourly manager pipeline is as essential as picking sites. Whether or not a wider labor pool brought on by COVID aids that is hard to say. Unemployment numbers are up, but so is discretion. A lot of recruitment now concerns unemployment benefits and the future of possible relief packages. And just how the virus narrative and case counts progress. In many cases, potential employees need to be convinced to come back or reenter the workforce. Restaurants that invest in safe workplaces and communicate those protocols will have a leg up.
“You'll definitely see more openings going forward in the future,” Hartung said. “Too early to put a number on it, but landlords are excited to have Chipotle. They're excited to honor our request to put a Chipotlane more than they were, call it, a year ago. And so, we feel really good about all the aspects of our development pipeline.”
THE COVID ROAD FOR CHIPOTLE SO FAR:
Chipotle grew its footprint from day one by sticking mostly to suburban spots or urban sites “on the edges,” meaning neighborhoods of cities. Hartung said Chipotle will take a cautious approach to New York City (and like markets) understanding major metros might need years to get back.
Also, focusing on suburban targets taps into the Chipotlane opportunity. Units with the order-ahead pickup lane are running 30 percent better on sales versus other stores during COVID. If you look at the 100-plus restaurants with a Chipotlane and narrow to those open for a longer period, pre-COVID, they’re still pushing 10–15 percent higher volumes, Hartung said. That’s a $200,000 to $300,000 hike. They start out hotter.
Margins are also higher in Chipotlanes because the digital business is greater. An average Chipotle (these days) is sitting around 50 percent digital. Chipotlanes are 60 percent. And, critically, roughly two-thirds of that 60 percent is order ahead and pickup—Chipotle’s highest-margin transaction.
The design of the store pushes guests toward the off-premises occasion Chipotle prefers, over delivery.
It costs Chipotle about $75,000 extra to build a Chipotlane. Not a bad tag for $200,000–$300,000 of extra cash flow at a higher-margin pass-through.
“It's a no-brainer, and that's why we're leaning in to Chipotlane,” Hartung said. ‘That's why you've heard us say this year, we expect more than 60 percent of our restaurant openings will be Chipotlanes. Next year, we think it's going to be more than 70 percent. And I think going forward, I think if anything, the natural tendency will be that number will go up, not down.”