Chipotle Gets Back to 'Project Square One'

    A focus on foundational operations has sent the brand on a hot streak.

    Fast Casual | April 26, 2023 | Danny Klein
    Chipotle exterior of restaurant.
    Chipotle's total revenue in the first quarter increased 17.2 percent to $2.4 billion.

    Chipotle CEO Brian Niccol was asked Tuesday where to attribute the brand’s recent surge. Same-store sales lifted 10.9 percent, year-over-year in Q1—a number that sailed its own guidance and defied a fast-casual landscape ceding traffic in light of price hikes. As much as Chipotle has innovated across its business of late, from loyalty to LTOs to an upcoming automation investment, Niccol didn’t offer a convoluted blueprint. Instead, he repeated himself.

    “Project Square One” was mentioned 11 times during the company’s Q1 recap. It’s a label Chipotle attached roughly nine months ago to a plan “retrenched on getting back to the basics.” 

    From a high-level view, Chipotle faced an imbalance that has become commonplace throughout COVID’s rebound. This idea that brands invested in new channels (digital) to survive, which tilted the operations playbook away from traditional aims. Chipotle’s dine-in sales lifted 22.9 percent in Q1 over last year, while digital mixed about 39.3 percent of F&B revenue.

    Niccol summed “Project Square One” as “getting the foundational elements of Chipotle’s execution back to [the] Chipotle standard of excellence.”

    To start, Chipotle focused on making sure its digital make line remained open from start to close each day, and that ingredients were available throughout the full shift. Then, it worked to ensure it was staffed and trained to “get people down the line really fast with exactly what they want,” Niccol said.

    “I can’t emphasize enough how important that is because everything then builds from there, right?” he said. “Our digital personalization program builds on that. Our menu innovation builds on that. Talking about a brand with purpose builds on that.”

    Chipotle experienced, too often, Niccol said, stores weathering ingredient outages and running out of staples like guac, chips, and chicken. With throughput, the brand made progress, he added, but opportunities remain. One key area being deployment on the front and digital make lines during peak periods. This, as much as anything for quick-service restaurants, has flashed as a pandemic pressure valve. Brands across the sector have reported top-line growth thanks to higher digital business (along with price) that might not be as elevated as it was during COVID’s darkest stretches, but remains well above 2019 marks. 

    It's a balancing act that’s sagged operational execution at times. Niccol said Chipotle noticed when the digital make line gets busy, managers tend to pull a crew member from the front to help, which is impacting throughput. The brand is currently testing changes to its smarter pickup times logic based on different sales and deployment levels in several markets. “Early results show that we are increasing throughput on the front line and increasing on time on the digital make line without impacting sales,” Niccol said.

    Chipotle’s hourly turnover rates in 2022 came in at 193 percent after 194 percent the year before. It broke down as follows:

    Restaurant hourly (crew, kitchen leader, service leader)

    • 2022: 193 percent
    • 2021: 194 percent
    • 2020: 141 percent
    • 2018: 144 percent
    • 2017: 158 percent
    • 2016: 130.1 percent


    Restaurant salary (apprentice, GM, restaurateur)

    • 2022: 44 percent
    • 2021: 43 percent
    • 2020: 31 percent
    • 2018: 49.1 percent
    • 2017: 37.1 percent
    • 2016: 38.1 percent


    Restaurant field managers (field leaders, team directors, regional VP)

    • 2022: 19 percent
    • 2021: 21 percent
    • 2020: 16 percent
    • 2018: 26.3 percent
    • 2017: 18.7 percent


    Senior management

    • 2022: 12 percent
    • 2021: 0 percent


    Niccol said Q1 was “another outstanding quarter for turnover,” with hourly and salary metrics “being some of the best I’ve seen in five years.”

    “The stability of crew and managers and a return to shoulder-to-shoulder training is helping to translate Project Square One into results,” he said. “… Both of those reasons that we've improved dramatically are driven by, I think, more stability in the restaurant with better training and then holding people accountable to those standards.”

    Chipotle’s rate of internal promotion was 90 percent last year, carrying over similar results from previous years.

    Project Square One will shadow Chipotle’s playbook going forward. The brand plans soon to introduce new clamshell grills into 10 restaurants. Tests so far show a more consistent product. But equally notable, cooking times drop dramatically. Chicken, for instance, goes from 12–13 minutes to 2–3 minutes, “and you get perfect sear, perfect char, just really delicious culinary,” Niccol said.

    This ties into labor as well given the grill role is one of Chipotle’s hardest to train. It makes the job easier and frees up additional space on the plancha (the brand’s wood stone gas alternative to flat-top griddles). 

    “It just eliminates any potential bottleneck for our future growth,” Niccol said.


    A look at Chipotle's future automated make line.

    An innovation not quite as near is Chipotle’s “Hyphen” platform. In July, the chain’s “Cultivate Next” venture—a $50 million out-of-the-gate fund designed to make early stage investments—announced it was funneling resources into Hyphen, a foodservice platform designed to help “restaurant owners, operators, and budding chefs move their business forward by automating kitchen operations.”

    Hyphen’s first product, “The Makeline,” is an automated system that uses robotics and a customized operating system to give kitchens a reliable and precise way to make a fulfill order. The hallmark is it assembles all digital orders under the counter via automated production while allowing staff to assemble in-house orders from the top of the counter.

    Niccol said the system can fit into existing locations. It’s basically, pull off the current line, put in the new one. Likely, it will arrive in new builds for Chipotle since it’s easier to implement, Niccol said, but the brand is designing the technology (one of the benefits behind investing in it) so that it will work within current stores as well. “So, all these things are driving toward hopefully better guest experiences, but also a better work environment for employees,” Niccol said. “And then, obviously with that, I think we will be more efficient in both cases.”

    “… And then we've got some other exciting initiatives on making our prep easier, right, frying chips or cutting and cleaning avocados,” he continued. “So, we're making a lot of investment and we're going to continue to experiment. Not all of it will work, but I'm confident having innovation in this space is a big unlock for our brand in the long run.”

    Project Square One’s compass was visible in Chipotle’s recent menu innovation, too. TikTok customers asked Chipotle for fajita veggies and Chipotle’s honey vinaigrette as options for the digital-exclusive Veggie Quesadilla. So, it worked with two TikTok food reviewers who made the idea go viral at the start of the year and then leveraged its strength in digital marketing to bring it all together. Importantly, though, Chipotle did so without adding any ingredients.

    During launch, Chipotle nearly doubled its quesadilla business and produced two of its top digital sales day ever, Niccol said. The brand elected to make it a permanent menu item.

    Chipotle also introduced Chicken Al Pastor in May as a systemwide LTO. It marked the first time the brand launched a new menu innovation globally as it rolled across Canada and Europe as well. Likewise to the TikTok reaction, the product was designed to be operationally simple—it takes Chipotle’s existing adobo chicken, cooks it on the plancha, and then mixes in an al pastor marinade. “The fajita quesadilla program was received really well. The chicken al pastor program was received really well. But I know they wouldn't be as powerful if we didn't have Project Square One driving behind it,” Niccol said. “So I think we've talked about this a lot—one of the things that makes Chipotle really special is its operational ability to achieve tremendous throughput with unbelievable culinary and unbelievable customization. We’ve got to nail that. And we have to nail it both on the front line and in the digital experience.”


    Chipotle recently opened an all-electric restaurant. That, too, features a Chipotlane.

    A loyalty tide

    Chipotle’s rewards program hit 33 million members in Q1. The brand kicked off 2023 by unveiling “Freepotle,” a new perk that gives users up to 10 free food drops throughout the calendar. All existing members automatically enrolled, and non-members were offered access if they signed up by March 6. 

    Niccol said the revamp resulted in a “nice pickup” in enrollments and lifted engagement as “Freepotle” gained traction. 

    Behind the scenes, Chipotle added advanced location-based technology to its app. This allowed for a more seamless process for scanning rewards where customers receive prompts to scan while they’re waiting in line. Niccol said it led to more rewards members scanning for points in-restaurant, driving engagement.

    For digital orders, the upgrade also now alerts app users when it appears they’re ordering from or heading to the wrong location, “as one of our most frequent refund requests is due to guests arriving at the wrong restaurants,” Niccol said. Since deployment, there’s been a “meaningful” reduction in those refunds, he noted.

    In all, it’s a circular effort designed to remove friction from engagement and promote longevity. Then, Chipotle can present digital-exclusive deals, like the quesadilla launch, to attract new users. “That is what we want to do,” Niccol said. “We want to continue to have acquisition and then we want to dial up the personalization and make it super easy to stay active and engaged, because we know the more engaged you are it plays out in more purchase frequency and higher ticket.”

    The horizon goal: 40 million members. “I don’t know where the ceiling is on this thing,” Niccol said. “But we’re going to continue to push toward getting as many people involved and then work very hard to turn it into a very personalized program that keeps them engaged.”

    Growth, small markets, more order-ahead pickup lanes, and a cutback on pricing

    Chipotle remains on track to grow new restaurants 8–10 percent per year for the foreseeable future, Niccol said. At least 80 percent of that plan will include the brand’s order-ahead pickup lane feature. It recently opened its first “Chipotlane” in Ontario, Canada, and, of its 41 new stores debuted in Q1 overall, 34 included the option. Chipotle expects between 255–285 new restaurants this year. So its Chipotlane footprint, which crossed 500 in November 2022, is well on its way to triple-digit territory and beyond.

    Chipotlanes continue to generate higher digital mix by “several hundred basis points,” CFO Jack Hartung said, as well as produce a shift where delivery takes a step down from the high teens to the mid or low tweens. Order ahead steps up from the low 20 percent range to high 20s, or even 30 percent in some spots. “All the benefits that we've seen with Chipotlane are continuing to show up,” he said.

    Chipotle’s small-market focus is a model that dates to last February. Niccol said a recent opening in California produced the second-highest opening day sales in Chipotle’s history. In fact, within the last year, the brand appreciated its top five openings ever. Four of those were in small towns. “Lots of opportunity in front of us on new restaurant opening frontier,” Niccol said.

    Chipotle’s comp and performance in Q1 was buoyed by lower avocado prices and last year’s menu price increases. Restaurant-level margin of 25.6 percent increased about 490 basis points, compared to last year.

    Pricing is running about 10 percent higher than last year. That breaks apart as 8.5 percent in-store order ahead. And then on top, 1.5 percent for delivery.

    Niccol said Chipotle plans to stay the course on its pricing approach. If inflation warrants it, the brand will take it. “The good news is, we're in a really strong position that when we're ready and we believe it's necessary to pull that pricing lever, we can and we continue to have a really strong brand to do it with,” he said. “We have not made any definitive plans on pricing for the balance of the year, but we're going to stay the course on the approach we've taken over the last, I'd say 18–24 months.”