How Chipotle Plans To Remain A Digital Leader As Other Chains Play Catch Up

Food & Drink

Chipotle has been a technology pacesetter for years, adding second makelines and deploying Chipotlane models to support its digital business well before the pandemic turned consumers into digital dependents.

These efforts pushed the chain to a $1 billion digital business in 2019. By Q3 2021, the chain surpassed $2 billion.

That said, every other chain has also experienced material digital sales growth and the competition to capture consumers’ attention on their mobile apps has become more intense than ever. So, what can we expect now from Chipotle as other chains play catch up?

For starters, the chain will leverage its strong balance sheet and its business model to press the gas. Chipotle has no debt, which is a big deal as technology requires G&A expenses at a time when businesses are navigating a confluence of other inflationary pressures.

During the company’s recent Q4 and full year 2021 earnings call, CFO Jack Hartung noted G&A costs were about $101 million in Q1 and will likely grow each quarter as the company continues investing “primarily in technology.” Those G&A costs have already been growing, increasing from $89 million to $92 million to $100 million during the previous quarters throughout the past year, for instance.

“The growth of the business requires us to invest more in technology. Our digital business is over three times bigger than it was pre-pandemic and it was 25% bigger in 2021 versus 2020, so you’ll see increases in the compute required to run the digital business just based on growth,” Chief Technology Officer Curt Garner said during a recent interview.  

Further, its 100% company-owned model should provide a major advantage with consistency. Historically, franchised systems have been challenged with disparate technology systems that can in turn cause disparate experiences.

“As people try to catch up, we’ll always be able to differentiate in terms of our real food, responsibly raised meat, classic cooking techniques. We’re also not franchised. As a company, we hang our hat on digital and how technology deployed consistently and correctly can improve the human experience,” Garner said.

The company is aiming to extend that “human experience” beyond the four walls of a restaurant, which is important as the chain’s digital sales mix continues to hover in the mid-40-percent range even as dine-in business returns.

For instance, digital consumers can see the environmental impact of their orders through the app’s Real Foodprint feature introduced in late 2020. The chain also added a gamification element to its loyalty program last year.

“We are trying to understand what it means to personalize experiences beyond just building a transaction,” Garner said. “That positions us well to form deeper relationships and have people engaging with us beyond just lunch and dinner.”

Chipotle’s continued digital acceleration is supported by its real estate strategy, as more than 80% of its new unit growth is expected to be a Chipotlane model to support its mobile-order business. Digital orders tend to be higher and yield higher margins, and as the chain works to get its average unit volumes above $3 million, this ecosystem will play a critical role.

“As we announce our plans to more than double our restaurant footprint–to 7,000 [from about 3,000 now]–this becomes an important lever in our access strategy. There is a whole segment of people looking for a closer Chipotle and there will continue to be a group of people who want delivery as an option–both in our app and marketplaces–and we will continue investing in all the ways consumers want to access our brand,” Garner said.

Access is an industry-wide objective as consumers have quickly grown to expect having what they want, when they want it and where they want it. Chipotle’s fledgling loyalty program is also a major part of this access strategy and the program, launched in 2019, has already grown to more than 26.5 million members. Garner said the program has the ability to personalize experiences, influence behaviors and drive more frequency and spend.

“I think we’ve struck a chord that people want to be a part of something that is more than just serving lunch. The rewards platform is a great way for us to thank our customers and reinforce their affinity and to be a part of what we’re doing,” Garner said. “Personalization evolves into this feeling of ownership. We’re hearing more people talk about ‘my Chipotle’ or ‘my Chipotle order,’ and that’s how we know we’re connecting. We want to feel owned.”

Of course, this digital strategy extends beyond the consumer experience and into operations. Garner said the company is leveraging technologies such as the internet of things, automation and machine learning to build better tools to run restaurants.

Chipotle is currently implementing such technology to help ease labor pressures hindering the entire industry, including a new scheduling tool that uses machine learning to build more efficient schedules. It is also rolling out a “more intuitive learning program.”

“These investments are at the heart of what we do in our restaurants,” Garner said, adding that such efficiencies have helped with retention as 90% of restaurant management roles are internal promotions.

“When you see us leaning into this space, it will be a question of ‘are there better tools to help our crews versus removing a task?’ When we talk about our restaurant crews, for example, they don’t love doing dishes,” Garner said. “Are there better tools that don’t necessarily remove someone from doing dishes, but help them with that task? Those are the kind of things we’re looking at.”

Chipotle is also looking at leveraging technology for its increasingly important delivery channel, which is currently about 20% of the digital sales mix. A year ago, the company invested in autonomous delivery company Nuro, for example, and though Garner said there were no public updates on this collaboration, he adds, “We’re excited about what it is they’re looking at and what they’re doing. We think there is an intersection with their vision and ours.”

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