Industry News | April 25, 2017 | By Alex Dixon | QSR Exclusive Brief

3 Reasons Why Chipotle is Beating Expectations in 2017

Chipotle Mexican Grill
Restaurant level operating margin was up 17.7 percent in the quarter, an increase from 6.8 percent in Q1 2016. Chipotle Mexican Grill
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Chipotle announced its Q1 2017 earnings results Tuesday amid positive investor sentiment that the brand has begun to recover from food safety outbreaks in late 2015.

The brand’s revenue increased by 28.1 percent to $1.07 billion in the quarter as it opened 57 new restaurants.

Customers are returning

Following customer illnesses from food safety issues at its locations, Chipotle saw a nearly 30 percent decrease in same-restaurant sales in Q1 of 2016. But that is beginning to show signs of turning around this year, as comparable location sales were up nearly 18 percent this quarter due to improved customer traffic, reduced promotional activity, and increased average check.

MORE: Chipotle's Comeback Takes a Promising Turn

Restaurant level operating margin was up 17.7 percent in the quarter, an increase from 6.8 percent in Q1 2016, which was primarily driven by sales leverage, lower marketing and promotional spending, efficiencies in labor, and lower food cost.

Marketing will continue

However, the brand won’t abandon all marketing efforts to repair its image and bring in more guests. Chipotle recently launched its largest campaign yet, As Real As It Gets, intended to highlight its commitment to real ingredients, and the company will advertise throughout the rest of 2017.

“Even though much of our attention was dedicated to simplifying our business and strengthening the guest experience, we never lost focus of our commitment to making better food made from whole unprocessed ingredients accessible to everyone,” chairman and CEO Steve Ells said in a conference call Tuesday. “All of our food is prepared from using 51 real ingredients. While many other fast food brands have been busy upgrading their menus by replacing artificial ingredients with friendlier sounding industrial additives that serve the same purpose, we’re committed to serving only real ingredients in our food.”

Digital ordering and desserts

Chipotle is now testing two dessert items to roll out at locations, including bunuelos, which are fried tortilla strips with honey, cinnamon, and sugar. Ells says the dessert will be served with an apple caramel dipping sauce and are simple to make using existing equipment.
The brand increased its online sales by 53.5 percent in the quarter, and will continue making digital ordering a priority through its pickup technology, which dynamically assigns pickup times based on transaction volumes. Chipotle will make digital orders through a second, dedicated prep line which will be led by crews specifically trained to fill these orders.