Investors are buying what Brian Niccol is selling.
Stock in Chipotle Mexican Grill surged more than 15% on Thursday morning, a day after the company’s new CEO described a burgeoning strategy of improved marketing, daypart expansion and digital and online ordering to improve the chain’s sales and traffic.
“You will see us doubling down on our purpose and our guest experience,” Niccol said on Chipotle’s first quarter earnings call Wednesday. “We will get better at innovation and putting customers front and center.”
“We will provide greater consumer access, including through delivery and catering. We will enhance the digital experience, innovate around our menu, and improve our restaurant design.”
The company will also improve its marketing, a clear area of focus for the company given Niccol’s background with Taco Bell and his hiring of Chris Brandt to be the new chief marketing officer.
“The brand has been invisible,” Niccol said. “If you combine great fundamentals in the restaurant with now a visible brand that has a powerful purpose and really craveable food, it’s a recipe for a lot of opportunity that can play well in ways consumers want to eat food today.”
The company has made some progress. Net income increased 29% to $59.4 million, or $2.13 per share.
Restaurant-level operating margin increased to 19.5% from 17.7%. And comparable store sales increased 2.2% in the quarter, which ended March 31.
Executives said that customer satisfaction scores have increased, and “Turnover at the crew level is the best we’ve seen in many years,” CFO Jack Hartung said on the call.
But that 2.2% increase came thanks to a 4.9% increase in prices. In addition, consumers ordered more queso, which increased average check by 2%. That implies a decline in traffic, which Hartung said decreased by 3.3% to 3.5% on the earnings call. So Chipotle is still losing customers.
Chipotle is “clearly a recovery story in the U.S.,” Niccol said. He called Chipotle “a powerful brand that has really strong economics, strong purpose.”
“The opportunity is really exciting for what this brand has in front of it,” he added. “The innovation will be across the business, in access, digital, menu, and frankly, we’ll double down on our fundamentals.”
Niccol said the company could innovate around many of its existing ingredients and with its existing supply chain.
“I see no barrier to innovation,” he said. “If anything, I see these great ingredients to be able to further distance ourselves from other restaurant alternatives.”
Niccol talked a lot about “access” to the brand, meaning more digital and mobile orders and perhaps drive-thru windows in the future.
He said the company’s second makeline is a “huge enabler for our business to take throughput to the next level.” That will enable mobile and online ordering in the future to improve consumer access to the brand.
Digital sales in the first quarter increased 20%, Niccol said, and are now 8.8% of sales. Average wait times are down by more than half, he said.
“Digital is a key piece of the puzzle, right?” Niccol said. “Whether it’s through mobile access, delivery access, kiosks as access, catering as access. The trick for us is figuring out what comes first.”
He said the brand is “not that convenient,” with just fewer than 2,500 stores. Delivery and mobile ordering could make the brand more convenient.
That could also mean drive-thrus, but not now. “Drive-thrus are an interesting proposition,” he said. “It will be something that will definitely be a part of our access innovation program,” but “would fall further on that longer-term scale.”
Niccol suggested the company has a “daypart opportunity.” He said that there are “opportunities to expand” the chain’s operating hours, which are typically from 10:30 a.m. to 10 p.m.
He said there is some downtime within the chain’s extended hours that, “with some marketing and some product innovation, we could turn those downtimes into transaction-driving times,” Niccol said.
But that doesn’t necessarily mean breakfast. “I see a real ability to drive the existing platform into those dayparts without having to take the step today all the way through breakfast and introducing a whole new food platform,” Niccol said.
Marketing works alongside all of these areas, Niccol suggested. He believes improved marketing could remind consumers “why they love Chipotle,” notably its “food with integrity” mission.
But he also said that it could help bolster the chain’s sales at weak periods and could help consumers understand the chain’s digital and mobile capabilities.
“More than 50% of the people don’t even realize that we started to do these things,” Niccol said.
Niccol said that the company will focus on “tweaks” and small things to build little wins as they work on longer-term strategies to improve the brand.
“There are simple wins on our way to accelerated opportunities in the future,” he said. “We’ll find some singles on our way to finding home runs.”
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