Recently, Chipotle expanded its debt-free degrees program to include Paul Quinn College, the nation’s first urban work college and one of the oldest historically Black colleges and universities in the country. The brand covers 100 percent of tuition costs up front for more than 75 different types of business and technology degrees for eligible employees, including crew members, through a partnership with Guild Education.
Of those enrolled in Chipotle’s education assistance program, Niccol said 85 percent are crew members. It’s seen a retention rate 3.5 times higher among those participating. And crew members enrolled are 7.5 times more likely to move into a management role within the organization. Nearly 70 percent of Chipotle’s GMs are internal promotions.
This is vital beyond culture and the fact retention and promotion are generally more cost effective than hiring from the outside.
Niccol called it “extremely important as we promote and hire new leaders to help support continued growth in our digital business as well as a meaningful acceleration in 2021 new restaurant openings.”
On that latter note, Niccol said Chipotle has more than 6,000 locations in sight, with AUVs expanding above $2.5 million and margins at or above 25 percent.
Chipotle exited Q3 with 2,710 restaurants. There were 2,546 this time a year ago. But vividly, Chipotle had 2,408 on December 31, 2017. Growth had slowed in 2018 and just started to pick up before the pandemic arrived—80 debuted in Q4 of that fiscal year, more than any other period at any time in Chipotle’s history.
Given real-estate conditions potentially loosening as more sites come available in the wake of closures, and the development of high-margin “Chipotlanes,” the only thing that could really slow Chipotle at this point is recruitment in a challenging labor arena. How difficult might come boil down to if another stimulus passes and whether it includes expanded unemployment benefits or not, and to what extent (once again, a lot is riding on this election).
Chipotle previously unveiled plans to hire 10,000 new people with a "We Are Open. We are Growing. We Are Hiring" campaign that launched in May and resulted in roughly 8,000 hires by mid-summer.
“I think we've got a great employee value proposition,” Niccol said. “So not surprising, we're attracting a lot of applicants. The investments that we've made and the way that we've handled, I think, this COVID environment in regard to honoring bonuses, providing our employees with restricted stock, and also giving them all the tools they need, whether it's mental health benefits, debt-free degrees, obviously a lot of the work around diversity and inclusion, all these things, I think make the job really exciting.”
“And then you layer in the simple fact, we're a growth company, right? So you're going to come into this company—maybe you join as a crew member; maybe you join as a kitchen manager. But we're going to be building 200-plus restaurants and there's a growth opportunity for you wherein in the next 18 to 24 months, you could find yourself being a manager running a restaurant.”
Chipotle has about $1 billion of cash on its balance sheet. So when you talk about chains ready to pounce on growth opportunities ahead, it’s clearly well-positioned.
CFO Jack Hartung said earlier Chipotle’s pipeline was actually going better than it would have absent coronavirus.
To Niccol’s 200-plus comment, Hartung noted, in a “couple-of-year period,” the brand could return to that pace. It would represent nearly 100 more projected openings per calendar than Chipotle planned for 2021 before the crisis.
From 2014 to 2015, Chipotle expanded 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.
What’s inspiring some of this growth is the Chipotlane opportunity. Currently, there are 128, including five conversions. The digital gap versus non-Chipotlane units remains about 10 percent, driven entirely by higher margins attached to more pickup and order-ahead transactions (versus delivery). The 17 Chipotlanes mature enough to be included in the company’s comps base, meaning they opened well before COVID, have appreciated sales 10 percent higher over the same period. More recent pandemic openings are actually 25 percent better.
This year, Chipotle expects 60 percent of its growth to include the mobile, order-ahead lane. It should eclipse 70 percent in 2021. Of Q3’s 44 openings, 26 included the feature.
Out of the gate, the 10 percent boost equates to about $200,000 in added volume. Not a bad return for a $75,000 to $100,000 investment. In addition to new growth, expect to see Chipotle relocate or convert older units, Niccol said. “We're starting to see much more traction with landlords being willing to work with us on the conversion and we're also seeing nice results from the conversions that we've tested to-date,” he said.
Chipotle’s one sore spot in Q3 was restaurant-level operating margin of 19.5 percent, slimmed from 20.8 percent a year earlier. Management credited COVID-related effects, including higher delivery expenses, elevated beef prices, increased incidence of steak thanks to carne asada, and few sales of high-margin beverages due to fewer dine-in occasions.
