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Chipotle Doubling Down On Digital Is Paying Off Wildly

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Restaurant earnings got off to a choppy start this quarter, with Del Taco and McDonald’s both missing analysts’ earnings-per-share expectations.

Then Chipotle reported Tuesday afternoon and knocked it out of the park. Again.

Chipotle’s same-store sales jumped 11% in Q3, its the ninth straight positive quarter. Analysts had estimated an increase of 9.3%, according to Consensus Metrix.   

There are a few drivers of this growth. The chain’s carne asada, launched last month, marked its first new protein in three years and drove both traffic and check. Its social media and marketing efforts have generated quite a bit of buzz of late. Its employee-focused initiatives are attracting the right people in a historically tight labor market

When it comes to Chipotle, however, it’s pretty clear that its robust digital ecosystem is king. Digital sales this quarter rose 88%. That’s a staggering number to be sure, but even more so when considering the chain’s previous quarter, in which digital sales were up 100%

Digital sales now account for about 18% of sales for the chain, with some units pushing 30%. 

Where’s the limit here? According to Curt Garner, Chipotle’s chief technology officer, the company is nowhere close to its digital potential. 

“We’re almost maniacs when it comes to looking at ways to reduce friction for guests and our crew,” Garner said.

Reducing friction was a recurring during the company’s earnings call Tuesday. Chipotle is achieving this objective in a number of ways: expanding delivery, which is now available in 97% of its restaurants; growing its new-ish Chipotlane drive-thru channel, which gives customers who order ahead a designated pickup area; implementing a second digital makeline to help with throughput for such orders; and introducing a new rewards program, which has already generated 7 million downloads in less than seven months. 

All of these initiatives have been critical in setting the company’s pace, but the loyalty program likely has the most potential because of the data it yields about Chipotle’s users.

“During this quarter, what we found is that people who now have Chipotle digital are coming back more often and that it’s still attracting a lot of new customers to the system,” Garner said. “That shows we’re giving them something they like. Those new customers are part of what we’re so excited about in terms of incrementality as it relates to our digital business.” 

CEO Brian Niccol reiterated this during the call, stating that the loyalty program has a bigger representation of new and medium-light users than other cohorts, which no doubt opens up plenty of opportunities for the brand, particularly in a restaurant industry strapped for traffic. As such, transactions for Chipotle during Q3 were up 7.5%.

Notably, Garner doesn’t point to digital as the only impetus behind this impressive number, also crediting the coexistence of the menu, operations and marketing.

“If you do digital right, it won’t matter if you don’t do all of those other things right,” he said. 

Still, Chipotle’s laser focus on its digital ecosystem has created quite a juggernaut in an industry that is quickly splitting between the digital haves and have-nots. This should provide the company with a significant advantage as younger, digital-first consumers continue to gain spending power

Garner explains that Chipotle’s entire digital approach starts and ends with throughput, ensuring guests get their food as quickly as possible. This is accomplished by following a “mise en place” vision created by founder Steve Ells. Such an intentional layout isn’t just for the physical layout of its restaurants, but also the brand’s digital landscape (for example, Chipotle’s mobile app).

“All of this is done around the notion that we can be accelerators, that the idea of throughput helps with opportunities along the digital journey. We are looking at the two or three things we do best, for example, as well as the steps we can take away,” Garner said. 

This operational cadence is what he believes really differentiates Chipotle from other restaurant companies. As many brands scramble to find new ways to navigate the kitchen in order to fulfill growing digital orders, or even look to virtual kitchens to ease that added pressure, Chipotle has been implementing a digital-order-specific makeline, which is now in place in all of its restaurants. 

“We thoughtfully started this journey knowing we needed a digital line. We knew it would be putting our customers and crew members in a bad spot to be making a lot of digital orders on one line and so we developed our digital system with the idea that we had to pull the thread all the way through the physical restaurant experience,” Garner said. 

Because the chain just finished rolling out its digital makelines and is fairly new to its loyalty game, Garner is plenty optimistic about what’s next. 

“Restaurants that previously didn’t have those digital makelines were hindered with an inability to grow that business, and now they’re not,” he said. “And, we’re just seven months into our rewards program and, over time, will continue to see higher dollar revenues from there.”

That loyalty program has exceeded the company’s expectations thus far and will help inform Chipotle’s digital strategy moving forward. 

“We’re just now starting to unlock the longer-term behavior trends in the data. It will take us some time to understand what customers are ordering, what messaging will resonate,” Garner said. “That’s a big unlock for us in the next year.”  

Chipotle, like some other industry giants, is also looking at predictive technologies, such as machine learning and artificial intelligence, as well as other technologies, such as connected kitchens and Internet of Things. These types of tools are quickly becoming a necessity in an intensifying industry, Garner believes.   

“If we can be better at predicting sales at different times of days, and therefore do a better job of deploying labor, ordering ingredients, things like that, we’re going to look at those opportunities,” he said. “The more information you have, the more advantages you’ll have.”