“The delivery performance, not surprising right now, what we're seeing is it really is impacted by how we promote it, because we're in the early days of getting people to understand that it's available,” Niccol said.
“… I think over time as we build awareness, build a habit, I think we'll see this play a bigger and bigger role in getting us into an off-premises occasion.”
As for the Q2 performance, CFO John Hartung said the 4 percent rise in menu prices helped sales, and also didn’t hurt customer sentiment to any concerning degree. Customer resistance to the lift remains at or below 20 percent, he said. It was also lower than Q1 as Chipotle lapped the first increase from April of last year in about 20 percent of its restaurants. All of this led Chipotle to raise its full-year sales outlook to low- to mid-single digit comps increases, up from the low-single-digit percentage increase it forecasted earlier.
Chipotle’s profit fell 30 percent from the year-ago period to $46.9 million, or $1.68 per share, thanks to higher labor costs and restructuring expenses. Food costs at 32.6 percent represented a decrease of 150 basis points from the 34.1 percent in Q2 of last year. This was driven by the menu price increase and more favorable avocado prices, Chipotle said.
Updating its previously announced plan to close underperforming locations, Chipotle said about half of the 55–65 expected closures have taken place. During Q2, Chipotle closed five Pizzeria Locales in Kansas and Ohio, as well as three Chipotle units, including one relocation. On Thursday, the company said it shuttered 29 Chipotle restaurants. It expects to be at the lower end of its 130–150 new openings guidance set at the beginning of the fiscal calendar.
Chipotle’s overhaul is wide-ranging and focused on five areas, Niccol said: “Becoming a more culturally relevant and engaging brand that builds love and loyalty; digitizing and modernizing our restaurant experience to create a more convenient and enjoyable guest experience; running great restaurants with great hospitality and throughput; being disciplined and focused to enhance our powerful economic model; and building a great culture that can innovate and execute across digital, access, menu and the restaurant experience.”
Niccol said it’s too early to comment on menu changes, but the chain is just getting ready to use its stage-gate process to move a handful of initiatives from its NEXT Kitchen into an actual test market, where Chipotle can “really have true learnings of customer experience, team-member experience, and then how that plays out on total Chipotle performance.”
Niccol said Chipotle is doing a better job staffing its restaurants to match sales volume, and has lowered, year-over-year, its hourly turnover. It has also seen “a meaningful decline in guest complaints.”
“This tells us that we've made progress and that our guests are noticing the difference,” Niccol said. “We know that when the food is delicious, the feel of the restaurant is great, and we removed the friction from the flow of the order process, no matter the channel, we delight customers.”
Chipotle overhauled its training material several months again and has 75 percent of its field leaders through what it calls “Cultivate University,” an in-restaurant and in-classroom one-week training session launched in April. Chipotle is supplementing the platform with a new hospitality program in restaurants.
By October, Chipotle expects to have a digital version for mobile and tablets of its previously paper-based “owner’s path,” tool. This comprehensive review of restaurant performance equips field leaders with the ability to observe and focus on the critical details of delivering improved guest experience, Niccol said.
“In addition, the tool creates teaching moments for their general managers and documents that corrective actions are taken when needed,” he added.
Additionally, Chipotle is redesigning its forecasting and labor scheduling system to improve sales forecasting and to deliver the right amount of labor at the right time.
“In addition, our team members will have the ability to see their schedules remotely and swap shifts through mobile phones, taking these tasks out of the hands of the manager. We believe leveraging technologies such as this makes us a more desirable employer as we work to create a better experience for our crew members. We will continue to make investments in our restaurants because a better experience for our team members directly translates to a better experience for our guests,” Niccol said.
