Chipotle’s interim chief executive officer made one thing especially clear Tuesday during his first earnings call since his predecessor Brian Niccol left for Starbucks – the company’s strategy, created on Niccol’s watch, isn’t changing. The company will continue to focus on operations, technology, people, branding, and expansion/convenience, with a long-term goal of reaching 7,000 North American locations, surpassing $4 million in average unit volumes, expanding margins, and growing its international footprint.
And why wouldn’t the company stick to its plan? The chain continues to buck overall industry trends with positive sales and traffic trends while attracting otherwise discerning consumers across all income cohorts. Though third quarter results fell just short of Wall Street expectations, same-store sales were up 6%, with more than 3% transaction growth. Sales overall grew 13% to reach $2.8 billion.
Boatwright said the company experienced positive transaction growth each month during the quarter, gaining even more momentum once Smoked Brisket returned to the menu in September for the first time in three years. The limited-time offering has driven both incremental transactions and spend. The company expects the item to remain on menus through the fourth quarter, to be followed by the Chipotle Honey Chicken, which Boatwright said is one of the company’s most successful tests to date.
LTOs aside, one of the most intriguing storylines from the call focused on Chipotle’s “running successful restaurants” strategy, or improving throughput, which has been a North Star for the brand for the past several quarters now.
Boatwright said the company spent the past quarter focusing on the expo position – which is the crew member between the salsa and the cash register that helps expedite order assembly and payment. With that position in place, Chipotle is able to generate five incremental entrées in its peak 15-minute window.
“In late August, we made a decision to have the manager on duty deployed to the expo position during peaks. This has helped to improve the percentage of restaurants with an expo in place to over 60% compared to just over 50% last quarter,” Boatwright said.
Despite the progress made on throughput, Boatwright noted that much work needs to be done. At restaurants that don’t have the right throughput pieces in place, for instance, crew members are still prepping food during peak hours.
“The fact is, preparing our food is a lot of work and requires strong culinary skills. Our teams are beginning prep at 6 or 7 a.m. to be able to deliver our food on time when we open. This includes slicing and dicing produce, hand-mashing avocados, frying chips every day, and grilling items on the plancha,” Boatwright said.
To achieve more efficiency here, the company is exploring tech and equipment solutions to make the prep process easier. A dual-sided plancha and produce slicer are currently working their way through the chain’s stage-gate process, with the plancha expected to be in nearly 80 restaurants next month and a broader rollout next year.
Boatwright said when the company presented the produce slicer earlier this year at its manager conference, the news generated a standing ovation.
“The new produce slicer drives improved efficiency, which will allow our teams to complete the prep process on time in every restaurant, resulting in better deployment at peak and better throughput. And it also improves our culinary by delivering consistent cut sizes,” Boatwright said.
The equipment is beginning to roll out at all restaurants, with completion expected by next summer. Additionally, Chipotle’s automated makeline and Autocado technologies have both been deployed in a single-unit test, while the company is also testing a dual-backed fryer that helps cook chips.
“One of the challenges we have in our restaurants is our teams are so involved in cutting, slicing, dicing, chopping, and preparing all the ingredients used throughout the day. Oftentimes we fall behind. The challenges are formidable,” Boatwright said. “We have a number of initiatives underway, and I envision significant back-of-the-house changes in the near future that will drive efficiencies and improve the consistency of our culinary in our restaurants.”
Such efficiencies are also expected to help lift margins as Chipotle looks to get back to the high-20% range, and even 30%, from its current 25.5%.
“We have a lot of confidence in our ability to get back to high 20s. We think the algorithm still holds at $4 million (AUVs) and 30% (margins),” Boatwright said. “There are several initiatives that are in the pipeline today, whether it's supply chain initiatives or efficiencies or technologies, like equipment technologies, will help us be more efficient at the restaurant level.”
Chipotle Q3 by the numbers
- Sales increased 13% to reach $2.8 billion
- 6% same-store sales, with over 3% transaction comp growth
- Digital sales represented 34% of sales
- Restaurant-level margin was 25.5%, a decrease of 80 basis points year-over-year
- 86 new restaurants opened, including 73 Chipotlane models
Contact Alicia Kelso at [email protected]
