Chipotle's digital business earned more than $3 billion in annual revenue last year and accounted for 37.4 percent of sales in Q4, but CEO Brian Niccol sees room to get better.
The fast casual launched nationwide an advanced location-based technology that engages customers as soon as they arrive at a restaurant. It uses real-time data to showcase order readiness messaging, wrong pickup location detection, and reminders to scan the Chipotle Rewards QR code at checkout. Results show better delivery speeds, a reduction in customers picking the wrong location, and an improvement in experience for rewards guests.
In 2022, loyalty members grew 20 percent year-over-year to 31.6 million. Sixty percent of promotions were personalized, and the plan is to increase that figure. The chain recently rolled out Freepotle, which offers each member 10 personalized free rewards throughout the year.
"What we definitely know is when people are engaged in our rewards program, we get more purchase frequency out of them," Niccol said during Chipotle's Q4 and full-year earnings call. "And the most engaged people come through our digital business when it comes to our rewards program. So I do think the combination of high engagement with rewards specifically around the amount of personalization that we’re doing here will result in more frequency out of customers down the road. And usually, that comes via a digital experience is where you see more of the impact from the rewards program."
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To boost digital even further, Chipotle invested in Hyphen, a food service platform that automates the digital make-line process. The idea is that employees would be freed up to focus more on in-restaurant customers, further improving throughput. The first robotic digital make-line will be tested at Chipotle's Cultivate Center in Irvine, California, later this year. The fast casual is also experimenting with Chippy, a robotic arm that fries chips. That innovation recently went live in one restaurant.
The closest piece of equipment to be rolled out is a new grill that will improve the cooking process for chicken and steak. Niccol said it's faster and brings consistent execution, creating a shorter learning curve for new employees. The pilot is currently moving from one to multiple stores.
"All these are really promising because when you can significantly reduce cook times and then make the practice of grilling chicken and steak easier, good things happen with our culinary, and that's what we've seen in the one restaurant," Niccol said. "People are giving us feedback that the steak and chicken taste great. Our team members are giving us feedback that they love using the new grills, and so we're more consistent with great culinary. Everybody wins."
Although digital is still going strong, its mix was down from 41.6 percent in the year-ago period. Niccol said it's due to returning in-restaurant consumers and the decline in delivery, which saw transactions drop 15 percent in Q4. Chipotle believes digital will eventually settle in the high 30 percent range.
"I think there’s probably some people who are deciding that while that channel adds a lot of convenience, there is a higher price that comes with that," said Niccol, explaining Chipotle's decline in delivery. " ... We feel like we’ve reset the delivery business to be now where it makes sense economically. And as such, our order-ahead business, I think, has started to show the right trajectory. And then obviously, our in-store business has shown tremendous acceleration."
Pricing rose 13.5 percent in Q4, but the brand said it hasn't seen resistance, other than drops in the delivery business.
The higher-income consumer continues to come more often. As for the lower-income guest, Niccol said they were going to hold back no matter what pricing action Chipotle implemented, and that the brand wasn't in the business of chasing consumers with discounts. He'd rather win customers with culinary, convenience, and customization.
"We’ve seen people stay committed to the idea of getting Chipotle," CEO said. "I’m sure there are those customers where if something’s free somewhere else for delivery, they might take advantage of a freebie. But look, we’re not interested in renting or borrowing customers. We want people to be a part of the Chipotle business because the value proposition is right for them. They buy into the food that we provide, the culinary that we provide at the convenience and speed at which we provide it. So that’s been a conscious choice, and I think it’s going to serve us well in the long run."