Chipotle's Digital Sales Triple YOY
Chipotle Mexican Grill Inc. continues to post strong sales. For Q3, digital sales grew 202.5% to $776 million and accounting for 49% of sales for the quarter. Overall revenue increased 14.1% (comp sales jumped 8.3%) to $1.6 billion for the quarter.
“Assuming this momentum continues in Q4, we believe digital sales could exceed $2.5 billion in 2020, more than double what we did last year,” said Brian Niccol, Chairman and CEO, in an earnings call with analysts. A full earnings release is available here.
Building Trust
Chipotle is “benefiting from investments made a few years ago, including advanced air filtration systems, sanitizers throughout the restaurant, wellness protocols, and improved handwashing,” Niccol explained.
In addition to following CDC and local regs, the brand is using a tamper-evident packaging seal on all digital orders and has created the role of steward to sanitize high-traffic areas.
“Collectively, these efforts … give our employees and guests confidence that Chipotle remains steadfast in our commitment to keep them safe as we reopen restaurants for in-restaurant dining.”
Out of its 2710 locations, only 10 remain closed, 85% are offering limited in-restaurant and/or patio dining, with the remaining being open for to-go services.
Since sales “troughed in late March,” Chipotle has been able to retain about 80-85% of its digital sales gains while recovering 50% to 55% of in-store sales. “The stickiness of digital is a key factor in allowing us to deliver strong results, and we’ll continue to invest in making the digital experience as easy and frictionless as possible, as illustrated by the recent launch of our group ordering feature on the Chipotle app,” he said.
Testing: Premium Delivery Prices
During the quarter, about half of the digital sales came via the delivery channel, with the remainder coming from order-ahead and pickup transactions. Both channels continue to grow.
The brand is also testing a variety of menu price increases in conjunction with delivery and delivery fees.
“We’ve got a couple of different tests in place,” explained Niccol. For delivery orders, menu price increases being tested are about 7%, 13% to 17%.
Before COVID-19, the brand was charging $3 delivery fee. Now that fee is $1 for white label delivery through the app.
“…For folks that are shopping in our white label, it’s a really, really good value,” said CFO Jack Hartung in the Q3 earnings calls. “If they’re shopping in marketplace, it depends on what the others are charging for their delivery fee, which we don’t have control over.”
Loyalty Matters
Chipotle’s loyalty program has grown 17 million members and the brand its at the tip of the iceberg when it comes to leveraging consumer insights and incenting behavior. “… We’re in the early stages of using this valuable tool to understand consumer behavior that will allow us to enhance their journeys and ultimately drive higher sales,” Niccol said. “We can also utilize these learnings to reengage members if their visits decline, which should efficiently sustain the stickiness of our digital platform. Over the next few years, we expect loyalty to be a key enabler of our digital flywheel as we optimize the use of this important data set.”
Driving Profits: Digital Pickup Lanes
During Q3 Chipotle opened 44 new locations, 26 with Chipotlanes or digital order pickup lanes. ”We now have a total of 128 Chipotlanes, including 5 conversions, and performance for these formats continues to be stellar,” said Hartung. “The digital gap versus non-Chipotle restaurants remains around 10%, and that’s driven entirely by the higher margin order-ahead transaction.” Locations with Chipotlanes also see a higher percentage of order ahead vs. delivery, he added.
About 60% of all new stores this year will have Chipotlanes, but the fast casual brand plans to ratchet that up to 70% of new stores in ’21. Existing locations may be remodeled or relocated to add a drive-thru lane.
“Opening more Chipotlanes will not only enhance customer access and convenience, but it also increases new store restaurant sales, margins and returns,” Hartung said.
“When you hear the results of our order-ahead business, the additional convenience, the incremental sales, I really think we’re in the phase of proving really the digital drive-thru of the future, and I’m glad we’re on the front end of it,” said Niccol.
Overall it was enviable quarter for the fast-casual brand.
”We’re getting close to being back to where we were performing pre-COVID, even though we’re still in a COVID world. And clearly, the composition of our sales are different coming from our much more significant digital business,” said Niccol. “But, we’re feeling really good about the trends we’re seeing in the business.”