Meanwhile, Niccol is confident the brand can grow $2.4 million average-unit volumes (trailing 12-month volume as of Q2) well past historical peaks of $2.5 million and into $3 million territory. This as it balloons to 6,000 North America units.
So a multi-billion-dollar business is staring down Chipotle, and it’s only going to gain additional access the more Chipotlanes that open. As CFO Jack Hartung noted in July, “The best returns we can generate are by investing in more Chipotlanes.”
The metrics support Hartung’s confidence. New Chipotlanes continue to open with sales 20 percent higher than traditional formats. They operate with 200 basis-points higher restaurant-level margin. This incremental profit comfortably offsets the $75,000–$100,000 cost of a Chipotlane and yield cash-on-cash return of at least 500 basis points above standard locations, BTIG analyst Peter Saleh said.
Also, over the trailing 12 months, Chipotlanes drove about a 15 percent higher overall digital sales mix. This is critical given today’s shifting consumer preference in light of COVID. The Chipotlane skews heavily toward order ahead—the brand’s highest-margin transaction, and a vivid counter-balance to third-party delivery, where it’s had to take price increases to offset cost.
Saleh believes, by 2025, there could be 1,000 Chipotlane locations through new builds alone, representing about 30 percent of domestic units. Saleh also sees runway for “several hundred” retrofits as roughly 80 percent of Chipotle’s existing stores are free-standing or end-cap sites.
Lastly, Chipotlanes could eventually enable the brand to expand menu offerings. The entirely digital, order-ahead setup allows ample time for food preparation and eliminates typical throughput concerns. Think digital-centric menu launches, like Chipotle’s March quesadilla (appearing in about 10 percent of Chipotle’s transactions as of Q2), and potentially, even late-night hours with drive-thru only service and a breakfast test, Saleh said.
The Chipotlane, clearly, triggered a significant turn for the brand and its prospects. Chipotle opened 40 locations in Q4 2018. The same timeframes ending March 31, June 30, and September 30 (all in 2019) saw openings of 15, 20, and 25 locations, respectively. In June 2018, the chain announced a revamp that included closing 55–60 stores. Chipotle had 2,408 restaurants on December 31, 2017 and 2,491 a year later.
It’s added 362 since, but 349 of those have come since March 31, 2019.
In other terms, Chipotle is tracking back to its old expansion prowess, before the 2015 E. coli crisis evaporated about half of its market cap and sent the brand on a multi-year journey to win back consumer trust. The brand added 216 locations from 2014–2015 and 227 the following year. It then sloped to 173 and 83 in respective calendars.
But as previously noted, 200 are on deck for this calendar alone. And that’s only the start, executives say.
“We’ll continue to learn and refine our approach to judiciously accelerate our Chipotlane portfolio, whether it’d be an older, existing restaurant, strategic relocations of existing restaurant, or through new restaurant additions,” Hartung said.
Beyond what might come down the pipe, COVID put drive-thru under a microscope sector-wide. Chipotle was no different.
Zalotrawala, who spent time at Panda Express, Arby’s, and Wendy’s earlier in her career, says the mission statement of fast-food drive-thru has always been a challenging one. Deliver food in a minute and a half, or two minutes. “But it isn’t reality,” she says. “The speed thing is counter-intuitive to a good guest experience. Because you’re asking your crew members to really rush through the orders, and that leads to ordering inaccuracy.”
If you want a positive guest experience, let customers customize their order in the comforts of their home, Zalotrawala says. Or their cars. Or wherever they might be. “And give your crew members the time to carefully prepare the order just like they would if you were in front of them,” she says.
Customers noticed Chipotle’s ability to bust that traditional drive-thru model in the past year-and-half of COVID conditions. “Chipotlanes served as the ultimate, touchless experience for our guests during the pandemic,” Khan says. “In uncertain times, we all were looking for the safest way to still experience the things we love and fortunately, Chipotlanes enabled that for many guests. As a result, we experienced a higher overall digital sales mix and sales at Chipotlanes compared to non-Chipotlanes.”
None of this would have worked, however, without the brand’s pre-virus investments. Namely, how it’s treated digital as operating a restaurant within a restaurant with second make-lines and dedicated resources. Zalotrawala says it was essential for Chipotle’s order-ahead business to receive specific assets. In some other concepts, second make-lines might kick into action only during peak hours. Or perhaps they’re smaller than the front, guest-facing ones. Yet Chipotle broke them apart evenly from the outset—the same size, the same pans, etc.—and continues to do so. “So imagine for a concept that’s not fully leveraging their second make-line or their digital make-line and they’re fulfilling their digital orders on the front line, in front of a guest that’s actually ordering at a Chipotle. Imagine the poor experience,” Zalotrawala says. “It’s horrible.”