Even in a COVID-19 bubble, the long game isn’t lost on Chipotle CEO Brian Niccol. When he arrived from Taco Bell in 2018, he called the chain “invisible.” Despite the fact it was spending roughly the same percent of marketing dollars as it is today, “nobody saw the brand,” Niccol said Tuesday in a conference call.

“If you would have asked what’s Chipotle up to, you would not have been able to give me a good answer. Franky, it would have been somebody else’s narrative,” he said.

Fast forward and Q4 and fiscal 2020’s results tell a different story. “Expanding access and convenience through our digital ecosystem has kept the Chipotle brand relevant,” he said. Even when Chipotle couldn’t greet guests during a global pandemic, it found a way to connect.

And this materialized most noticeably outside the four walls, where Chipotle’s digital business alone is now generating average-unit volumes of $1.1 million across the system. Forgetting dine-in business for Chipotle, $1.1 million would have ranked 36th among America’s top 50 highest-grossing quick-service chains in terms of AUV coming into the year, ahead of Moe’s ($1.095 million), Checkers & Rally’s ($1.087 million), and Dunkin’ ($968,000). It’s well in front of a Waffle House.

Overall, Chipotle closed fiscal 2020 with trailing 12-month AUVs of roughly $2.2 million, which is back to pre-COVID levels. This although only 60 percent of the brand’s dining rooms are currently open, with reduced capacity, and “a few” remain fully closed.

Yet Chipotle’s digital gains aren’t struggling to cover the gap. Total Q4 sales were $1.6 billion, representing 11.6 percent year-over-year growth, fueled by 5.7 percent same-store sales. And the brand is off to an 11 percent comps run in January against a double-digital comparison last year. Even with COVID cases surging, Chipotle’s two-year compounded stack in Q4 was 19.9 percent, similar to the 20.2 percent it delivered in Q3.

As dining rooms shuttered and occasions shifted to off-premises, Chipotle’s digital sales skyrocketed to $2.8 billion in 2020, or a 174 percent boost versus the prior year to 46.2 percent of total business. In just Q4, digital lifted 177.2 percent, year-over-year, to 49 percent of mix. Chipotle’s total year comp increased 1.8 percent and revenue upped 7.1 percent to $6 billion.

Niccol said Tuesday he was optimistic “COVID is hopefully more in the rearview mirror going forward.” Which brings the future back into focus.

Chipotle’s digital flare-up in 2020 was an outlier to some extent. The brand won’t lap 150-plus percent gains each quarter with continued triple-digital lifts.  

In January, digital mix remained in the low 50 percent range. As Chipotle’s welcomed 50–60 percent of dining room business back, it’s hung onto 80–85 percent of digital business, Niccol said. While sure to ultimately slide, he believes the customer has changed for good.

Before COVID, Chipotle saw its digital versus in-store Venn diagram as pretty defined. Guests were exclusive to one circle or the other. “I only did online and I only do in-dining and there was a few that do both,” he said. “That’s changed. You’ve got a lot more people doing both. And we’ve got people that historically probably would not have tried it, if not for, unfortunately, COVID, but they still really love that in-restaurant experience and now we’re top of mind for that occasion when they’re not going to be in the restaurant.”

“So we’re seeing a scenario where digital is going to prove to be very sticky and people look forward to getting back out and going into our restaurants,” Niccol added.

In talking to guests, Chipotle found a “fair amount” who want to get back inside restaurants once they can. Yet they’ve also adopted new digital occasions they’re not going to abandon.

And Chipotle can speak to this multi-channel customer in ways it simply couldn’t before, which goes back to the accessibility point Niccol made earlier. The brand entered 2020 with fewer than 10 million rewards members. Today, there are nearly 20 million. Roughly 60 percent of those are active.

For those who aren’t, Chipotle continues to develop reengagement programs and find ways to “get people to be reactive or reactivated,” Niccol said.

“Although Chipotle rewards and its CRM capability have been active for less than two years, we have already made significant progress and have further enhancements planned in the coming months that we expect will continue to drive frequency increases across our customer segments,” he said.

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Broadly, Chipotle is relevant in more eating and dining occasions than it was in the past, thanks to digital. It’s made the channel more convenient in recent months with easy ordering in its app and through website enhancements, such as unlimited customization, contactless delivery, and group ordering. Chipotle announced last week a carside pickup pilot in San Jose, California.

Additionally, Chipotle’s asset base reflects its evolving business. Niccol said the company is in the early stages of testing “alternative formats,” like its first digital-only restaurant that opened outside West Point.

The new prototype, dubbed “Chipotle Digital Kitchen,” requires customers to order in advance via its app, website, or through third-party delivery. Food is then picked up in a lobby designed to mirror the sensory experience of a traditional Chipotle. It also serves large catering orderings for pickup in a separate lobby with a dedicated entry.

Niccol said this allows Chipotle to enter more trade areas that wouldn’t support a full-size restaurant, and unlock flexibility with future expansion. “It’s early days,” he said, “but this location has outperformed our expectations thus far.”

There’s another trend to consider. During Q4, about half of Chipotle’s digital sales flowed from order ahead and pickup transactions, or “digital pickup orders,” as the brand calls them. The remainder came from delivery. The delivery reality challenged restaurant margin a bit, as it came in at 19.5 percent—an increase of 30 basis points, year-over-year. Higher delivery costs were the culprit.

In response, Chipotle implemented several delivery menu price differentials with the weighted average right around 13 percent, CFO Jack Hartung said. “We’ve seen modest resistance thus far and we’ll continue to monitor and adjust pricing as appropriate at the market level or at the restaurant level,” he said.

One route to soften the issue is the store model itself. The fast casual’s “Chipotlane” unit has producted a digital gap (versus non-Chipotlane restaurants) around 10 percent, driven “entirely by higher-margin digital pickup orders, Hartung said. Also, these stores open close to existing restaurant AUV right out of the gate. Historically, Chipotle restaurants start in the high- to mid-80 percent range of sales before maturing.

The brand isn’t wasting time trying to capitalize. It opened 61 restaurants in Q4, and 42 of them had Chipotlane order-ahead windows. For the entire year, Chipotle debuted 161 restaurants, with 100 offering the feature.

Chipotle predicted 150–165 openings for 2020 before COVID arrived. It got to the high-end, all challenges throw into the pot.

At 2020’s close, Chipotle had 170 Chipotlanes in the system, including five conversions. “These results reaffirm our strategy of an accelerated pivot toward Chipotlane insight,” Hartung said. “Not only will this enhanced customer access and convenience, but it also helps increase new restaurant sales, margins and returns.”

While 62 percent of new restaurants in 2020 offered a Chipotlane, the brand’s goal for 2021 is closer to 70 percent. And this is against 200 openings. The brand also plans to remodel or relocate 10–15 restaurants so it can add a Chipotlane.

Niccol said the brand is optimistic it can bring these “to every trade area in the United States that we think makes sense.”

“I think we’ve talked about that as, hey we’re accelerating, we’re going to get back above 200 [openings a year]. We’re within striking distance of where the max level of development we did in the past [250 or so]. And so, the economics will create the new restaurant openings, are opening really strong Chipotlane continues to perform,” Niccol said.

He added you’ll continue to see Chipotle experiment with digital-only stores, as well as Chipotlane-only locations without dining rooms.

Niccol hinted at this latter option in December. He said the brand was plotting one in Kansas City—an older market. The key there, as Niccol previously noted, is digital, accessibility, and ways to leverage both, are reopening trade areas Chipotle once thought fully saturated. Getting to 250 openings a year will be a combination of expanding reach and also infilling mature markets with digital-first designs built to extract more dollars in areas that otherwise would have given Chipotle pause.

The ability to pivot to a digital proposition or an on-site proposition, in other terms. And the fast track to 6,000 restaurants (the vision expressed by executives in recent months), or about double the 2,768 it had as of December 31.

Like he did in December as well, Niccol spoke briefly about international expansion, which really hasn’t been on the table for some time. He said they’re seeing success in Canada and have “some plans in place for places that we already have our foot in the door.”

“So think of the U.K., France, specifically, and so you’re going to see us starting to really use kind of our stage-gate process to move those markets along and then we’ll evaluate other regions accordingly,” he said.

Chipotle has eight locations in the U.K. and 23 in Canada. Previously, Chipotle tried to grow in France (2012 to start) and German (August 2013 was the first) a shot. But it hit roadblocks. Press reviewers called the food overpriced. Obviously, the dynamic has changed overseas, especially in terms of delivery.  “When we’ve done some research, what is clear is people love the purpose of food with integrity, they love the customization, they love the food and frankly the whole value proposition, I think has led us well beyond the United States,” Niccol said.

However, even with all these tangible changes in motion, the full business of Chipotle—both make-lines and Chipotlanes as an access point to digital, is “just really winning economics,” he said.

And to that end, there are plenty of sites available in the U.S., and more coming up as the COVID landscape settles. The brand wants not only to reach 6,000 stores, but to do so with AUVs in the $2.5 million range with margins at or above 25 percent. That would imply more than $15 billion in revenue.

“All of which is a question of when, not if,” Niccol said.

Fast Casual, Finance, Story, Chipotle