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    Chipotle’s Multimillion-Dollar Plan to Fix its Business

  • Industry News February 7, 2018
    flickr: Mike Mozart
    Mobile ordering increased 50 percent over 2016 at Chipotle.

    Count Chipotle as the next major restaurant brand to see a lift from the Tax Cuts and Jobs Act. And like other leading companies, including Starbucks, the fast casual will divert a large portion of those savings directly into its workforce.

    Chipotle announced Wednesday morning, the day after it reported fourth quarter and fiscal 2017 yearnings, that it will bolster benefits to all 71,000 of its employees. This includes special cash and stock bonuses, as well as enhanced parental leave. This investment is just a small portion of the company's purposed improvements for 2018, which it believes will jolt its struggling business into the future.

    READ MORE: Chipotle gets a sales boost from higher menu prices

    “We have always been proud of our ability to attract and retain top talent who share our passion for cooking delicious food by hand and creating an extraordinary guest experience," says Steve Ells, founder, chairman and CEO at Chipotle, in a statement. "We're giving back to these committed, motivated, and hardworking team members who have made Chipotle what it is today."

    Chipotle said it’s investing more than a third of its anticipated savings from tax changes into its employees, and that the benefits have already started rolling out. The remaining savings will aid facility and operational improvement. More on that below.

    As for the employee benefits, here are the new details as outlined by Chipotle:

    Accelerated Training Programs

    More training programs for employees, including a formalized classroom program with a dedicated faculty that will focus on a range of topics related to operational excellence and leadership.

    Cash & Stock Bonuses

    Qualified hourly and salaried restaurant employees will receive a special one-time cash bonus of up to $1,000. Qualified staff employees will receive a one-time stock grant.

    Maternity/Paternity Coverage

    Additional paid parental leave coverage for everyone from hourly managers to salaried employees.

    Life Insurance and Short-Term Disability

    The company has added life insurance and short-term disability insurance coverage for hourly restaurant managers.

    Chipotle currently provides twice annual metric increases for hourly employees, paid vacation and sick time, and stock awards to the restaurant manager level.

    Additionally, the company offers up to $5,250 in tuition reimbursement and has a reduced-cost course and degree program that includes a number of colleges and universities.

    "We have always been committed to making Chipotle a great place to work with excellent compensation and benefits," Ells added. "With these expanded offerings, we're thanking our employees for their hard work and dedication to our company."

    Chipotle reported comparable same-store sales growth of 0.9 percent in the fourth quarter and a revenue increase of 7.3 percent to $1.1 billion. The revenue was in line with Wall Street expectations while the comps exceeded 0.7 predictions.

    Still, the brand’s shares dropped more than 9 percent in pre-market trading Wednesday to $275.96.

    There are some major changes on the books, including a new CEO to replace Ells, which the company provided some details on. Ells, who is shifting to a chairman position once the hire is announced, said many of the candidates come from the industry and have led “or been a key player in these brands.”

    “And while they've enjoyed a lot of success in their companies, they've never had the kind of purpose that we've had at Chipotle, which is I think very, very exciting to all of them,” Ells said in a conference call, adding that he fully intends to have the new CEO be in charge.

    Chipotle also revealed that it’s planning to spend $45 million to retrofit new make-lines at about 30 percent of its restaurants in an effort to increase the amount of digital orders that can be processed. These digitally enhanced second make-lines will be in about 1,000 restaurants by the end of the year. Ells said Chipotle hit new digital sales records in the fourth quarter and second make-line sales were up 33 percent over the prior-year period. Digital sales accounted for 8.6 percent of the total, while two of the brand’s regions offered digital sales of more than 10 percent of their overall mix, Ells said.

    Restaurants with the second make-line have reduced guest wait times to less than 15 minutes. “These new lines enable a faster, more accurate experience for our digital customers and allow our crews to more easily support the higher sales volumes,” Ells said.

    Chipotle is also working on new restaurant designs, Ells said, to cater to the mobile user. These units will feature better beverage presentations and “more comfortable dining areas.” Ells said these designs could be applied to existing restaurants as well as new locations.

    And Chipotle will reinvest in its existing base with a “significant refresh and maintenance effort to improve the experience,” Ells said.

    The changes include: Replacing dim lighting; upgrading equipment on the service lines; and addressing worn areas, inside and out.

    “We'll continue to expand our digital infrastructure at our restaurants, and will also replace aging equipment. Some of these projects are relatively small in scope but with the potential to deliver a significant impact,” Ells said.

    John Hartung, Chipotle’s chief financial officer, said the company would invest $50 million to fund this refresh program. The company is also forking up about $15 million to improve IT infrastructure, a portion of which will improve digital programs.

    “This $50 million is a discrete one-time investment that will average about $20,000 per restaurant and it will allow us to fully assess the interiors of every single restaurant, improve efficiencies, ensure that the environments are warm and welcoming for our guests,” Hartung said in the call.

    Mobile ordering, meanwhile, boosted 50 percent over 2016, driven by Chipotle’s new version of its app, the company said. The new app added a quick reorder feature and offers the ability to receive and redeem offers. It also introduced new mobile pay options, a user-friendly store locator, and an enhanced design.

    Ells said average monthly users on mobile have more than doubled since it was released.

    Due to arrive in the second half of the year is Chipotle’s long-awaited loyalty program as part of a larger CRM effort. The platform is currently being designed and Hartung said the company hopes it will “spark a more positive transaction trend.”

    Chipotle is testing new catering offerings as well, which include options for smaller groups, more convenient packaging, and lower-priced offerings (as low as $9 per person and for groups as small as 10).

    Currently, Chipotle’s catering is only available to minimum parties of 20 people starting at $12 per person. Delivery support for catering is also only active in about 40 percent of restaurants and Ells said the chain expects to expand that moving forward.

    “With these initiatives taking hold, our catering sales have grown 20 percent over the last year. Catering is only a little more than 1 percent of our sales today, with tremendous opportunity for growth in the future,” he said.

    Ells hinted at some menu improvements.

    “There are exciting new offerings that are around things like salads and different kinds of grains and also exploration of traditional things and these are things that customers are asking for, things like nachos and quesadillas,” he said. “And so, how to integrate those into our service format so that we can maintain throughput and sort of the level of execution that we've relied on in the past is tricky.

    “The past couple of years have presented a set of challenges, but I know that the changes we have made are the right ones to help us move toward achieving our full potential,” he added later. “We will continue to focus on our long-term success and we'll continue to fight to preserve the things that make Chipotle special.