Operationally speaking, Chipotle walked into 2023 from a position of strength, said CEO Brian Niccol.
To start, restaurant productivity has improved by roughly 1,000 basis points since 2018. That year is important because it's when the company began opening Chipotlanes. New stores produce on average around 85 percent of what the existing comp base is doing. Three to four years ago, that figure was in the high 70 percent range.
In 2022, Chipotle opened 236 restaurants, and 202 of those were Chipotlanes or about 85 percent. The brand opened its 500th Chipotlane during Q4. The company ended the year with 3,187 stores and a $2.8 million AUV.
"So there’s been a step change," CFO Jack Hartung said during Chipotle's Q4 and full-year earnings call. "And the biggest thing that’s happened from the three years, three-and-a-half years ago to today is we’ve moved from having just a handful of Chipotlanes to having the majority of our portfolio is Chipotlane.
"When we look at what our Chipotlanes are doing, the 85 percent compared to 15 percent without a Chipotlane, they continue to outperform that non-Chipotlane cohort. So we think the main driver is the Chipotlane and the convenience that our customers find with that digital drive-thru."
One hundred of those 236 openings—90 being Chipotlanes—came in Q4, setting a new growth record.
"It was very, very back-loaded," said Hartung, putting context around Chipotle's record-breaking fourth quarter. "Our teams did a great job of just scratching, clawing, and doing everything that they could to get the restaurants open. And I think we probably had a record opening in the month of December as well. We had more than half of the openings or in the last month of the year."
It's also important to note what's going on inside these restaurants. Ninety percent of stores are fully staffed. Turnover for salaried and hourly employees is the best it's been in two years, and close to 2019 figures. Before COVID, the average tenure of a kitchen manager was about eight months, and now it's around seven to 7.5 months. For apprentices, Chipotle isn't back to 2019, but it's within striking distance, said Hartung.
Stability leads to experience, which results in advancement. In 2022, Chipotle promoted more than 22,000 workers, surpassing 2021's total. Ninety percent of management roles were internal promotions. This year, to help open stores, the fast casual plans to promote more than 1,800 hourly manager roles, more than 255 general managers, and more than 40 field leadership positions. Because of better headcount inside locations, frontline and digital make lines can stay open all day, which wasn't happening as much as Chipotle would've liked in the past couple of years.
Part of the reason why these numbers keep rising is that the brand is reducing virtual training in favor of more in-store, shoulder-to-shoulder instruction from experienced managers.
"This helps to accelerate onboarding and gives more confidence to our new crew members as they are learning by doing," the CEO said during the company's Q4 and full-year earnings call.
Additionally, thanks to better supply chain flow, units are no longer deactivating certain ingredients at a high rate. There were points during last year when Chipotle was experiencing hundreds of menu deactivations, but now that percentage is back in the single digits.
The combination of better staffing and having all ingredients on hand has led to a 10-point increase in digital on-time percentage. There's also been progress on throughput, although small. But Niccol said that has more to do with the time of year. He believes there will be bigger gains in the second quarter when Chipotle enters peak season.
As the brand exited Q4, transactions turned positive and continued to build in January.
"There was some omicron and then there were some good weather," Niccol said. "But what we've also seen is our staffing is at the best it's been. ... And I think the combination of focusing on the basics, meaning no menu deactivations, keeping the lines open, both our frontline and digital make-line from open to close, teams deployed correctly, is also a key driver in why we're seeing the traffic progress in January throughout that whole month."
" ... We're feeling good about where we are operationally," he added. "We believe we can still get even better."
The upward movement in January is a welcomed sign after a dragging Q4. Chipotle began softly in the quarter, seeing mid-single-digit same-store sales increases, but picked up in mid-November once it stopped comparing against the release of brisket in 2021. Matters slowed again in December once Chipotle lapped a menu price jump. Hartung said that around the holidays, the fast casual "didn't see that pop, that momentum" that it usually does.
In Q4, comps rose 5.6 percent, and that's inclusive of 13.5 percent pricing, negative 4 percent transactions, and negative 3 percent menu mix.
Chipotle launched Garlic Guajillo Steak nationwide just ahead of Q4, but the innovation didn't live up to expectations, Niccol said.
"I think it's one of those things where we tested it in a very different environment than when we rolled it out. And as a result, we got the check benefit, but we didn't get the transactions," the CEO said. "And it also had the challenge of rolling over brisket, which was arguably one of our best-performing menu items that we've done to date. But we'll continue to analyze that we make sure we learn from it going forward and that's why we use the stage-gate process so that we are always learning."
January same-store sales were in the low double digits. Factoring in tougher comparisons for the rest of Q1, Chipotle expects comps to finish in the high single-digit range. Right now, traffic is in the mid-single digits, but it's projected to slip to the low-single digits as the brand moves away from omicron comparisons. Pricing will be around 9-10 percent, and mix should be in the 2-3 percent range.