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chipotle digital makeline.jpg Photo courtesy of Chipotle
Chipotle's automated makeline in collaboration with Hyphen will go live in a restaurant this year.

Chipotle proves traffic gains are possible in this environment

Chipotle’s Q4 results included a same-store sales increase of 8.4% and a 7.4% increase in transactions, versus a 1.6% decline industrywide.

Chipotle’s Q4 2023 results far exceeded expectations, as well as the industry at large, with Tuesday’s report showing a same-store sales increase of 8.4%. Revenue increased 15.4% to $2.5 billion, while restaurant level operating margin increased to 25.4%, or about 140 basis points.

The company also opened a record 121 new restaurants during the quarter, 110 of those in the Chipotlane model. The highlight of the company’s report, however, was its transaction gain of 7.4%. This is compared to a 1.6% decline across the limited-service segment in the quarter, according to data, as well as negative traffic recently reported by both Starbucks and McDonald’s.

If this all sounds familiar, it’s because Chipotle reported traffic increases of over 4% in Q3, compared to negative 4.2% industrywide. Notably, Chipotle CEO Brian Niccol said this time around the chain has shown strength across all income cohorts – a different tune than McDonald’s, which reported earlier this week it has experienced negative transactions from lower-income consumers.

“One of the things we’re delighted to see is every income cohort we saw sales growth, whether that’s low $40s (thousands) … over $100 (thousand), we made progress with every income cohort,” Niccol said during the company’s earnings call Tuesday. “Clearly the brand is resonating in a meaningful way.”  

Execution helps. Chipotle has spent the past several quarters focusing on staffing and training to return to pre-pandemic operational and throughput levels – part of its “Project Square One” initiative. These efforts are starting to come to fruition, as the company is experiencing the lowest turnover rates since Niccol joined the company in March 2018. Such stability has led to higher throughput and more satisfied customers, he said. In addition to staffing stability, Chipotle also put more real-time coaching tools in place in Q4.

“We’re allowing teams to see their progress in real time, which is motivating. The last couple of quarters, we’ve put the building blocks into place and have adjusted the cadence of ordering,” Niccol said. “I’m thrilled to see the progress; it’s critical as we approach peak burrito season.”

Chipotle has also focused more on prep time in the morning before restaurants open for lunch. Niccol said the company “runs into problems” when it is running behind on prep.

“If we can get every restaurant 100% of the time to get the prep done on time, throughput would go up, so we’re doing everything we can to invest in prep,” Niccol said.

Those investments include a digital makeline created with Hyphen and an automated guacamole processing system called Autocado, in collaboration with Vebu. Both investments were made as part of Chipotle’s Cultivate Next venture fund. Niccol said both systems have undergone several iterations at Chipotle’s Cultivate Center in California and are ready to be piloted at a restaurant sometime this year as part of the company’s stage-gate process.

As Chipotle works to bolster its in-store operations, it is also enhancing its mobile and online platforms for the 36% of customers who access the brand digitally. Throughout the past year, for instance, the company has added order status updates, wrong location detection, reminders for Rewards members to scan their points, and more. Now, the company is adding a suggestive upselling feature at the checkout based on previous orders and other data points, and Niccol said the feature has helped increase incidents of sides items, like queso and guacamole.

“We continue to see people adding to their entrees. I think that’s what we’re able to do digitally at the point of checking out and communicating with them through our Rewards program,” he said, adding that suggestive selling based on historical orders leads to higher checks and “more commercialization.”

In addition to operational execution and digitally enabled access, Niccol said the company’s value proposition has also been a major driver for sales and traffic, as evidenced by its strength across income cohorts. Maintaining that proposition will be a key objective for the company this year, even as it comes off a 3% pricing increase in October and continues to mull more increases to navigate California’s AB 1228, which brings the minimum wage up to $20 an hour.

“Relative to our peer food offerings, other fast casual folks that have the same quality of food as us, we’re about 20-30% less expensive. Then you look at other categories that are more value and convenience, and the price delta you have to pay to get our quality, convenience, customization, is not that big of a leap up,” Niccol said. “I think that’s why we’re positioned really well.”

Full-year 2023 by the numbers:

  • Total revenue increased 14.3% to $9.9 billion
  • Comparable restaurant sales increased 7.9%Operating margin was 15.8%, an increase from 13.4%
  • Restaurant level operating margin was 26.2%, an increase of 230 basis points
  • Opened 271 new restaurants with 238 locations including a Chipotlane

"2023 was an outstanding year where we delivered strong transaction growth driven by throughput and menu innovation, opened a record number of new restaurants, surpassed $3 million in AUVs and formed our first international partnership," Niccol said in a statement. "I am more confident than ever that we have the right people and the right strategy to achieve our long-term growth goals of reaching 7,000 restaurants in North America, $4 million in AUVs, expanding our industry leading margins and returns and furthering our purpose of Cultivating a Better World globally.”

Contact Alicia Kelso at [email protected]

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