Chipotle Mexican Grill leaders outlined major tactical wins the brand has experienced during the COVID-19 crisis -- successes tied to the fast-casual chain’s previous investments in Chipotlanes, a new rewards program, food safety systems and online-only menu items.
During the Raymond James North American Equities Conference, CEO Brian Niccol said at the onset of the pandemic the Newport Beach, Calif.-based chain didn’t know how it would fare with dining rooms closed.
“We weren't sure how it was all going to play out. But luckily people quickly adopted the digital off-premise occasion,” said Niccol, who pushed the brand’s digital strategy when he became CEO in early 2018.
Going forward, the brand plans to build on its digital successes by experimenting with delivery prices and accelerating the adoption of Chipotlanes, or drive-thru lanes designed for fetching mobile orders. The brand also gave a menu innovation update tied to carne asada and efforts to rollout an “official” quesadilla product nationwide.
Here’s what Niccol and Chief Financial Officer Jack Hartung revealed during the fireside chat:
Digital business: Zero trade-off
In terms of absolute dollars, chain leaders said digital went from being a $500,000 business to well over $1 million business for each restaurant.
The brand’s app is driving digital sales. Before the COVID-19 crisis, the loyalty program had about 8 million members at the end of 2019.
That number has ballooned to more than 15 million.
Raymond James analyst Brian Vaccaro, who moderated the Sept. 17 chat, said his firm estimates that 25% to 30% of sales in Chipotle’s second quarter flowed through the loyalty program.
Niccol said much of acceleration in members has occurred since March. Even better, many of the new members are new users, not just dine-in guests who switched to off-premise.
“It's a really meaningful cohort,” Niccol said, adding that the rewards program could hit 20 million in the “not-too-distant future.”
Chain leaders said the brand's goal is to make sure guests get the same kind of customization Chipotle is known for when it comes to digital orders.
“We want people to feel like there is no trade-off between being in line or online when it comes to Chipotle,” Niccol said. “Zero trade-off.”
Niccol said the brand prior to the pandemic made investments in air filtration, enhanced sanitizers throughout the restaurant and improved hand-washing protocols.
That made the pivot to enhanced COVID-19 safety protocols much less complicated.
“We already had a lot of the things in place,” Niccol said. “Frankly, the only two things we had to implement new was the idea of social distancing and wearing masks. So our operators were very capable of executing within this COVID environment, and we made the enhancements that we had to make.”
Chipotle was charging a $3 delivery fee plus various other charges on delivery before COVID-19 forced a shutdown of dine-in services in March.
That made delivery crucial for the entire industry. During the crisis, the brand has offered various delivery promotions ranging from zero delivery fee to $1.
The brand is now looking at tweaking other delivery costs, from service fees to menu prices.
“We're going to experiment on service fees, delivery fees and then menu prices,” Niccol said.
Most recently, the brand has tested raising menu prices on delivery by about 7%. “That 7% doesn't get us all the way back to where we were with our $3 delivery fee proposition, but it definitely closes the gap,” Niccol said.
Chipotlanes driving sales, margins
The brand has opened about 100 Chipotlanes, drive-thru lanes for picking up mobile orders.
When the brand first experimented with this new channel, they wondered if would really be faster than someone parking and picking up their food inside the restaurant, Niccol said.
“And the answer is, ‘Yes.” It's perceived as a huge convenience benefit,” Niccol told investors.
As such, Chipotlanes have become a “bigger piece of our business,” he said.
Hartung said stores with drive-thru lanes are also outperforming those without Chipotlanes with adoption growing stronger during the COVID-19 crisis.
"As we opened up Chipotlanes, instantly, customers felt like this is the ultimate touchless experience," Hartung said.
Landlords who had previously been hesistant about Chipotle adding units witth drive-thru lanes are now buying into the idea.
Hartung said the brand spends about $75,000 extra to add a Chipotlane. In return, each store gets about $300,000 in extra cash flow, which is coming from sales on higher-margin items.
"It's a no-brainer and that's why we're leaning into Chipotlane," Hartung said.
Niccol said quesadillas can be prepared as an off-menu item at any store, but it takes up to 3 minutes to make.
The brand has been testing quesadillas made in countertop TurboChef ovens that take about 30 seconds to cook. The test has been ongoing in Cleveland and Indianapolis. The quesadilla is available as an online only product in those markets. The new digital only strategy is something the brand would like to continue testing.
“We now have an audience and scale where I think we can support doing digital-only initiatives like the quesadilla,” Niccol said, adding that his favorite is “a barbacoa quesadilla with some guac, sour cream and pico de gallo.”
He provided no timeline for making the quesadilla available nationwide -- either online or in-store. But, the debut is likely inevitable because it is the No. 1 requested new item by customers, Niccol said.
“We haven't expanded it yet. We're still working out a few wrinkles, but for the most part, it's performed [in test] the way we had hoped it would perform,” he said.
Niccol also addressed the popularity of carne asada, a limited time protein that is no longer on the menu. He said the brand is a couple of years away from making carne asada a permanent menu offering.
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Updated: This story was edited to include more information.