Executives Tout Digital Sales Growth, Ramp Up Development Strategy De-Emphasizing Dining Rooms
Chipotle Mexican Grill’s appetite for new locations is rising along with its digital sales, as the company now looks to more than double its fast-casual restaurant count over the next few years to 7,000 nationwide — largely by downplaying on-site dining.
Executives of Newport Beach, California-based Chipotle, which operates 2,966 mostly company-owned stores, told analysts Tuesday the company’s development team is now equipped to reach 8% to 10% annual location growth starting this year.
“The pipeline is very strong,” CEO Brian Niccol said during the company’s fourth-quarter earnings call. “We’re fortunate. People want Chipotle in their towns, and landlords want Chipotle in their centers.”
The move shows how the pandemic led restaurant chains across the country to reduce their space devoted to dining rooms and, in some cases, accelerated a move toward more takeout food that some companies were already putting in place.
After opening 215 restaurants in 2021, Chipotle plans to open between 235 and 250 restaurants in 2022, Chief Financial Officer Jack Hartung told analysts.
A year ago, the company was targeting 6,000 restaurants at a slower pace of growth. But a year of steady sales increases — spurred largely by online ordering that accounted for 42% of fourth-quarter sales and more than 45% of 2021 sales — prompted the company to speed up those plans.
The company reported revenue of $2 billion for its fourth quarter ended Dec. 31, up 22% from the year-earlier quarter, and $7.5 billion for the full 2021, up 26% from the prior year.
Company executives said new Chipotle locations would increasingly emphasize smaller formats with space dedicated largely to serving customers who order online for delivery and pickups through the company website and mobile apps, including those of third-party delivery companies such as Grubhub and DoorDash.
New Restaurant Type
Chipotle opened its first small-format prototype in December in Cuyahoga Falls, Ohio, with a kitchen preparing food solely for digital orders and a window for drive-up and walk-up service geared to those orders. Except for a few tables outside, the prototype has no on-site dining, and there is no front service line inside.
Executives said the company would continue to renovate or relocate existing locations to incorporate its “Chipotlanes,” a drive-up service available only to customers ordering through digital channels. Hartung said more than 80% of new restaurants in the coming year will have a Chipotlane, which officials said has helped locations rack up higher sales and profit margins created by efficiencies of digital service.
Niccol noted that because Chipotlanes reduce the need for dining room space, restaurants can often be constructed at a smaller scale and lower real estate cost, making them feasible for locations in smaller towns that might not generate the same customer traffic as larger cities.
Hartung said the expansion plans come despite pandemic challenges of the past year, including rising construction and labor costs, along with delays in obtaining restaurant equipment for new locations because of supply-chain disruptions.
Equity analysts who track Chipotle have generally been bullish about the company’s growth prospects, thanks largely to rising digital sales. In an October research note, Dennis Geiger, a UBS senior research analyst, said Chipotle “appears positioned for elevated sales growth over the balance of 2021” and longer term, “given continued digital gains, loyalty expansion, new menu items and a further recovery in dine-in traffic.”
Chipotle joins other national restaurant chains that were able to preserve or boost sales since the start of the pandemic by emphasizing digital sales as dining room traffic was significantly diminished. The loss of dine-in customers significantly decreased foot traffic and sales for smaller, independent restaurants, though business has been improving over the past few months.
A mid-2021 report from the National Restaurant Association trade group estimated that 90,000 mostly independent restaurants, or about 14% of all U.S. restaurants, closed permanently since the start of pandemic closures and capacity restrictions in early 2020.
The trade group earlier this month projected that restaurant sales would reach $898 billion in 2022, up from $799 billion in 2021. But more than half of restaurant operators it surveyed said it would be a year or more before business returns to a pre-pandemic normal, as food, labor and other costs eat into profit margins in 2022.