Niccol also suggested an intriguing long-term initiative. While U.S. comps and new-unit development remain Chipotle’s A1 target, international expansion is stirring again. “As you look out over the next three to five years, I don't see any reason why we can't start having success outside the U.S.,” Niccol said. “And so, we're going to start the process of using that … disciplined approach to looking at how we can build-out the markets where we already have our foot in the door and start evaluating new markets where we don't have our foot into those markets yet. So the health of the U.S. business compounded by the fact that now we have a really robust digital business, I think just gives us a greater chance of success when we go outside the U.S.”
Today, Chipotle has eight locations in the U.K. and 23 in Canada. There was a time, though, when Chipotle gave expansion in France (2012 to start) and German (August 2013 was the first) a shot. One of the reported setbacks at the time was press reviewers calling the food overpriced for their area. But a lot has changed in the past decade. Could European growth open back up? Niccol didn’t divulge further details.
Stateside, Hartung said, if Chipotle can capture all the margin opportunity it has, say by the second half of 2021, “we know that we have the ability to build to the 5,000 or 6,000 restaurants at our algorithm.”
Chipotle has previously said—and reiterated Tuesday—it expects to get back to the mid-200s growth pace on an annual basis. That’s 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.
An important part of that potential is the store model itself. Chipotle committed 60–70 percent of its future expansion to Chipotlanes. “And the reason is because the economics are phenomenal,” Niccol said.
If you consider where Chipotle is today (roughly 2,700 locations) and the fact the bulk of new openings will feature the outlet, there are going to be a lot of Chipotlanes along that road to 6,000. For a round figure, 70 percent of 3,000 is 2,100.
Margin wise, these restaurants, to date, welcome 60 percent of their sales through digital, Hartung said. Importantly, two-thirds of that is order-ahead. With these locations, the more profitable digital avenue lifts while the less profitable one (delivery) shrinks. “And so, every single metric that we look at with Chipotlane is better,” Hartung said. “It's better in terms of sales, better in terms of margin, better in terms of order ahead. It's greater convenience and it skews toward that higher-margin transaction”
Across the current system, Chipotle’s digital breakdown is nearly even between delivery and order ahead. And with delivery specifically, it’s 65 percent marketplace and 35 percent in-app.
There are about 150 Chipotlanes nationwide. At the end of Q3, there were 128, including five conversions. The digital gap versus non-Chipotlane units was 10 percent (thanks to more pickup and order-ahead transactions), and the 17 counted in Chipotle’s comps base appreciated sales 10 percent higher. More recent openings were as much as 25 percent above.
To Niccol’s point, Chipotlanes offer a $200,000 jump in added volume right out of the gate, which is a friendly return for a $75,000–$100,000 investment.
Digital underscored menu innovation as well for the brand. With the scale Chipotle now has in that corner of its business, it can try digital-only menu launches.
For instance, when quesadillas are ordered on the front line today (not on the menu, but people still order them anyway), it takes a minute and a half to 2 minutes to come out. That’s a significantly slow product make for an assembly line approach.