Wall Street always loves a good comeback. And it gravitates to the shiniest headlines. By Chipotle’s fourth-quarter and full-year review in early February, the company’s stock had soared some 70 percent in 2019. Shares traded for nearly $930 mid-Tuesday. We’re not all that far removed from October 2017, when it felt like Chipotle’s investor sky was in flames—the brand dipped below $300 for the first time since March 2013.
Hiring Brian Niccol from Taco Bell in March 2018 was the first mega-watt change. It’s proven far more substance than flash since. Just looking at 2019’s report, the results that grabbed attention were bold in scope: Q4 digital sales of $282 million, up 78 percent year-over-year. It’s a segment now mixing 19.6 percent of Chipotle’s total business, or a billion-dollar slice that has quadrupled in three years (it was only 12.9 percent in Q4 2018).
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For the full year, Chipotle’s same-store sales climbed 11.1 percent, with 7 percent transactions growth, as revenue upped 14.8 percent to $5.6 billion. Digital for all of fiscal 2019 leapt 90.3 percent versus 2018.
Yet Chipotle did share one stat that didn’t generate nearly as much noise. Niccol told investors that “we believe the general manager is the most important position to improving operational health and ensuring a great customer experience.” And this past year, Chipotle reduced turnover there by about 35 percent. Niccol said it contributed directly to the brand being able to report a 10 percent improvement in max, 15-minute throughput times.
The effort has sneaky importance for Chipotle. Even with all of the company’s progress in recent months, the brand remains below peak levels. Take a look at its average-unit volume progress since 2013.
Chipotle AUVs (in thousands)
- 2019: $2.200.0
- 2018: $2,000.0
- 2017: $1,940.0
- 2016: $1,868.0
- 2015: $2,424.0 (food safety crisis happened toward the end of the year)
- 2014: $2,472.0
- 2013: $2,169.0
The impact of Chipotle’s food-safety outbreak was severe, to put it lightly. A 14-state incident led to a yearlong sales downturn that evaporated about half of the chain’s market cap. And you can see what it did to sales at the store level, across the entire system, without wasting any time.
Chipotle chief restaurant officer Scott Boatwright joined in May 2017. All of that uncertainty and murky customer sentiment bled from sales into staffing, he says. It was a challenge to recruit just like it was a challenge to get customers back. Not only that, but Chipotle was developing a reputation throughout industry circles, especially at the higher levels, of being an insular company resistant to bringing in external talent.
“We recognized there was an opportunity,” Boatwright says. People didn’t tap Chipotle as a company willing to hire from the outside. So, they wouldn’t even apply.
“We were able to turn that around in 2018 and really attract, in my opinion, some of the industry’s best talent,” Boatwright says.
Chipotle hired Tabassum Zalotrawala, formerly of Panda Restaurant Group and Arby’s, as CDO. Chris Brandt came over from Bloomin’ Brands. Chief people officer Marissa Andrada, who clocked in April 2018, hailed from Starbucks and Kate Spade. Last May, Chipotle tapped Tressie Lieberman as VP of digital and off-premises. She spent two years with startup Snap Kitchen as CMO, but worked close to five with Yum! Brands, holding digital roles at Pizza Hut and Niccol’s former stop, Taco Bell.
The entire picture has changed, and it was critical to refreshing the culture element of Chipotle’s turnaround.
Returning to the restaurant level, Boatwright says, Chipotle’s success throughout 2019 “absolutely” made it easier to hire employees. Why is that so critical? The fast casual just opened 80 locations in Q4—more than it has in any period at any time in its history. Chipotle plans to add 150–165 more in 2020, too.
Boatwright says it was “exciting” for Chipotle to open so many restaurants in a three-month window. He doesn’t expect the company to get there consistently, but it stressed Chipotle’s resources and capabilities in a telling way. They know they could do it, if the opportunity arises.
A big part of that is hiring off the back of brand perception. Chipotle has an in-house recruiting team working out of Columbus, Ohio, that scours career websites and funnels candidates to leadership. There’s also a national new restaurant opening team that coordinates much of the busy work that goes into getting the doors open. Recruiting team members is sizable part of that.
So, what this comes down to is two main points, really: A brand that people now want to be a part of, and having the systems in place to quickly and effectively hire the right kind of crew members to keep Chipotle’s momentum going.
And you can circle GMs to get the conversation started.
Niccol noted in Chipotle’s Q4 call, “during 2019, this emphasis on our general managers resulted in exceptional food that is being prepared more consistently.”
The year prior, Chipotle said one of its goals was to realize less than 25 percent GM turnover by 2020, and that it wanted to implement a GM success profile and establish a competency-based interview guide. The latter element would be used to help field leaders identify and hire better candidates.
Chipotle’s turnover rate in 2018 at the salary level (which includes GMs, apprentices, and restaurateurs) was 49.1 percent. The 35 percent improvement figure from 2019 measures against that, Boatwright says.
[float_image image=”https://www.qsrmagazine.com/wp-content/uploads/2019/07/Scott.jpg” width=”50″ link=”” caption=”When Scott Boatwright joined Chipotle in May 2017, there was a lot of back-end work to be done.” alt=”” align=”left” /]
Naturally, lowering turnover will help Chipotle control costs during a time when labor rests like an anvil on brands’ bottom lines. Most quick-serves report hourly figures near 150 percent (Chipotle was 158 percent in 2017 and 144.9 in 2018), and this in the face of rising wage rates. As of July 1, 2019, the U.S. Department of Labor reported 30 states with minimum wage requirements higher than the federal per-hour standard of $7.25. Is that pressure going to let up? Unlikely. January’s unemployment rate was 3.6 percent, and we continue to see the lowest figures since the late 1960s.
In respect to hard costs, Black Box Intelligence estimates the price of replacing a single GM at roughly $14,000.
Boatwright says people shouldn’t get too sucked into the turnover part of the debate, though. “Sure, that’s important to us,” he says. “But I tell you, it’s really about the experience at the restaurant level and the experience that we’re creating for our people. That’s what I care most about.”
That might read like lip service, but it’s a tangible and very real battle for Chipotle. On day one, Boatwright’s whiteboard didn’t strike a highlighter through retention, throughput, or digital accessibility. He had to ensure the company’s food was safe, and that employees understood protocols to ensure 2015’s outbreak would never happen again. That was a unique challenge for a brand at this scale, and it lingered longer than most. Yet once that “belts and suspenders” work was completed, as Boatwright puts it, Chipotle could start thinking about some of the technical aspects of its business, like tech-enabled second make-lines, drive-thru “Chipotlanes,” and new, digital-centric restaurant prototypes.
There were other issues in play as well.
In 2018, Boatwright says, Chipotle had a lot of above-restaurant leaders “shuffling the deck” and transferring managers into new situations at a frequency that wasn’t sustainable, and stymied the brand’s progress.
The company needed to reduce transfers and create greater stability for GMs so they could stick around and focus on things like talent development. In turn, Chipotle would appreciate more consistent, better-run restaurants.
“We see [the GM level] as a key stepping stone. We just really need to provide clarity to what’s in front of the individual and what they need to do and how they think about their career long-term,” says Chipotle chief restaurant officer Scott Boatwright.
“And while it may sound like a little thing, the way it played out for the year for us was hugely beneficial on a lot of levels,” Boatwright says. “It allowed us to deliver a better experience for the team member as well as a better experience for our guests more consistently across all 2,600 locations.”
Basically, Chipotle wanted influential employees to stay rooted to locations. Not just to prevent them from heading to other restaurant brands, but also so they could nurture a system of more effective hourly employees. It’s hard to train employees and encourage retention and career development with a rotating door of GMs.
One of the unlocks, Boatwright says, was to pour resources into teaching managers how to direct teams and develop employees. Some 30,000-foot thinking in addition to task management. “And how to lead a team successfully in a way that is inspiring, engaging, inclusive, and that really helps everyone throughout the hierarchy get better and really achieve their career goals through Chipotle,” Boatwright says.
Chipotle had to become more transparent first. Boatwright says the promotion process was pretty ambiguous before. You had a couple of camps forming: Those employees who never thought they could grow past the line, and those who celebrated making GM like they hit the Chipotle lottery.
In response, the brand created a clear roadmap in 2019 and uploaded a guide to its intranet for employees to see what they need to learn to prepare themselves for future roles. And Chipotle also revealed hierarchy compensation levels so people could better understand what’s possible if they stick around.
Chipotle’s typical path looks like this: Crew—kitchen manager—service manager—apprentice—general manager—restaurateur—certified training manager—field leader—team director—executive team director.
But what each of those spots required to get there, entailed if you did, and the progression ahead, wasn’t clear. And that’s a story not just Chipotle, but all restaurants can benefit from telling, Boatwright says.
“I think the [restaurant] industry in general creates opportunities for people who ordinarily otherwise wouldn’t have those opportunities,” he says. “And that’s something I take very seriously.”
For GMs specifically, Chipotle illustrated the promotion as a potential springboard. These employees could become certified training managers; develop into people who train talent for the future while still running restaurants.
“We see [the GM level] as a key stepping stone,” Boatwright says. “We just really need to provide clarity to what’s in front of the individual and what they need to do and how they think about their career long-term.”
All of this starts, in earnest, with the interview process—a growth area for Chipotle as well, he says. The company developed an interview guide for managers so that they could identify culture fits.
“Share values and alignment that have a greater chance of success here at the brand,” Boatwright says. “And then really just creating the right culture in the restaurant. And so those three things in concert have really made a huge difference.”
Chipotle has a “GM Success Profile” that outlines core competencies like knowledge, skills, and abilities. They stem from the brand’s “Cultivate U 2.0” leadership and management training program.
The goal: shift current mindsets from a “tribal knowledge,” mentality to an aligned approach. Field leaders go through a series of workshops intended to build leadership skills and increase engagement.
Here are the pillars Chipotle stresses for GMs:
- Create a culture of accountability
- Lead effectively
- Develop situational leadership skills
- Understand the important of food safety
- Provide coaching and feedback
Cumulatively, shoulder-to-shoulder training, in-restaurant meetings and training, and video training provide employees with the equivalent of 15 days of training each year at Chipotle. Kitchen managers and apprentices receive six weeks of training. Service managers get four.
Benefits, benefits, benefits
It’s clear today that employees care about more than money. Yes, dollars still count the fastest and stack up the highest. But there are other life-work perks, betterment opportunities, and other less traditional options available for recruiters. (Here’s a look at why good employees quit restaurants).
For Chipotle, education assistance has been its lifeblood.
The brand’s Cultivate Education program evolved to four tiers in the past year—debt-free degrees, tuition assistance, tuition reimbursement, and an education support network.
Concerning the first, which launched in October, Chipotle will cover 100 percent tuition for select programs ranging from high school to college. For instance, employees can pick up a bachelor’s in finance from Wilmington University at no cost. (Here’s a full list of the options). All they need is a high school diploma and 120 days on the job before their course start date. Kitchen managers, service managers, apprentices, GMs, field leaders, and corporate employees become eligible on day one. Employees also need to clock an average of no less than 15 hours per week (minimum of 257 total hours) within the previous 120 days. And they can’t take more than a 14-day leave of absence in that span leading up.
With similar guidelines, employees also have access to $5,250 per calendar year toward Guild network programs. Chipotle will reimburse employees up to the same number toward eligible courses with the institution of their choice, too.
In the past two years, Chipotle provided more than $20 million in tuition assistance. As you might expect, employees accessing its Cultivate Education suite report higher retention rates than non-participating employees.
In 2018, Chipotle promoted more than 13,000 of its employees. The company’s rate of internal promotion was 79 percent and it employed more than 73,000 people, including roughly 67,900 at the hourly level.
Just last year alone, more than 2,600 Chipotle employees ranging from crew members to support center staff received north of $10.5 million in tuition assistance.
“For a manager to feel like their organization is investing in their abilities to lead more effectively, it requires a higher level of engagement,” Boatwright says. “They feel connected to the brand and feel the brand is investing in them personally, and really helping them grow as a leader.”
“We’re growing so quickly today that the opportunities are limitless,” he adds. “And we need above-restaurant leaders at the field leader level, the team director level, the executive team director level. In our organization, folks can achieve—they can go as far as they really want to go.”
Chipotle has kept this benefits conversion humming throughout the year. It announced in November it would provide access to mental healthcare and financial wellness for employees through assistance programs and enhanced offerings.
Additional enhancements to Chipotle’s 2020 suite of benefits available to all include:
- Cultivate Me portal (UPoint): A benefits site that brings the entire Chipotle healthcare ecosystem to employees’ mobile phones
- Healthcare plans: Enhanced hourly PPO plan for eligible crew in addition to the Preventative Plus plan
- Financial Wellness: Access to Ayco’s financial counseling platform, including an assessment, checklist and accompanying education to assist with financial planning
- Fitness Centers: Access to national gyms with discounted pricing
The company also unveiled a new crew bonus program in June 2019 that allows restaurant teams the opportunity to earn up to an extra month’s pay each year. In order to do so, pre-determined sales, as well as cashflow and throughput goals must be hit quarterly. The bonus (calculated as an individual’s average weekly pay per quarter), valued at more than $1 million two quarters ago, was achieved by 135 restaurants and 3,100 employees.
The bottom line, however, is that these goals are much easier today than they have been in some time for Chipotle. Boatwright says just being Chipotle puts the company at a strategic advantage amid the industry’s war for talent. You simply couldn’t say that back in 2017.
“And now, we just have to live up to that once they join our team, in which I think we’re doing an excellent job of over the last couple of years,” Boatwright says.
