Ending 2023 with industry-trend-busting momentum, Chipotle CEO Brian Niccol reiterated some bold goals for the fast-casual brand.
Chipotle is gunning to reach 7,000 units across North America, and the 3,437-unit chain is pressing the accelerator a bit on growth plans this year, despite an expected continuation of construction delays. After opening a record 271 units in 2023, this year the chain is projecting to open between 285 and 315 new restaurants.
In addition, Niccol believes Chipotle can increase its average unit volume to $4 million, from its current average of just over $3 million.
How will the chain do that?
Well, menu pricing will no doubt come into play. But maintaining the perception of value has been a key element in Chipotle’s ability to drive traffic last year, Niccol contends.
Wall Street analysts asked whether Chipotle might be looking for other sales drivers, like adding a breakfast menu—an idea that comes up periodically, despite being repeatedly swatted away.
Or would catering be the AUV-boosting catalyst? Or even increased use of automation?
Niccol, however, contends there’s nothing Chipotle needs to do that it isn’t already doing.
Chipotle has the elements in place right now to reach that $4 million AUV mark, Niccol said, though it will take some time for those investments to impact the revenue line. He does not offer a timeline.
Fundamentally, he believes the sales growth will result from the work the chain has been doing on operations, which is having a “multiplying effect,” Niccol said.
Chipotle has been focusing on throughput, for example, including ensuring the right people are in the right places on makelines to maximize peak performance.
That effort has included adjusting the cadence between the back-of-the-house digital makeline and the consumer-facing front line, and tracking data on a weekly basis that allows for coaching to “recognize great throughput while it is happening,” Niccol said.
Putting those tools in place during the third quarter last year has helped restaurants increase the number of entrees during peak 15-minute periods by 1% during the fourth quarter. And as the chain moves into its higher-volume “burrito season” in mid March, that throughput acceleration will prove even more beneficial.
Restaurants are also doing a better job with prep work, making sure there are enough chips, quacamole and queso, even late in the day, for example. That has resulted in incremental sales as people order more sides.
“We aren’t doing anything out of the ordinary, other than making sure we’ve got a great product ready to go,” said Niccol. “When people know it’s there, they order it.”
And when restaurants are performing well, that translates to better sales of popular limited-time offers, like the carne asada in the fourth quarter, which exceeded expectations, even though it was the item’s third return to the menu.
The chain has also been continuing to tweak its Rewards program, which now boasts about 38 million members, including more personalized suggestive selling. A guest who often buys a Mexican Coke, for example, might be reminded to add one if it’s not in their order.
And Chipotle is testing other tech advancements, like the Chippy tortilla fryer, the Autocado avocado peeler/corer and even an automated makeline, which assist team members with prep and potentially increase throughput further.
Those are a long way off from rollout, but these are things that will support team members, and happy workers means better food, happy guests and well-run restaurants.
“I do believe, at the end of the day, the thing that will get us to $4 million, and probably beyond that, is going to be great execution in the restaurant, meaning focusing on great culinary, great people and great throughput,” said Niccol.
And it’s early in the game for these efforts, Niccol said.
“The good news is we have a lot of headroom to go on operational execution, and I think we have the right things in place for the long term,” he said.
Restaurant-level margins—which increased 230 basis points in 2023 to 26.2%—are also expected to grow, and Chipotle expects it will get to a 10% unit growth rate by 2025.
Jack Hartung, Chipotle’s CFO, said the development team has been building more inventory than would be normally needed to offset construction delays. The timeline that used to take 14 to 15 months to open a restaurant now takes about 21 to 22 months, he said.
But the quality of new openings has been high, and the possible decline in interest rates ahead could help move things along by sparking developers to build.
“We’re really excited about where we go next on this journey,” said Niccol. “We’ll be even better in throughput, we’ll be even faster, and we’ll be even better on culinary. And I think that’s going to result in our achieving this $4 million average unit volume in our 7,000 stores in future.”
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