Financing

Chipotle struggles with speed as customers return to its restaurants

The burrito chain said staffing has reached pre-pandemic levels, but newer workers are less versed in operating with heavy in-restaurant business. The company is kicking off an operations effort to fix it.
Chipotle second quarter sales
Chipotle says it has started an operations program to improve speed and train workers on throughput./Photograph: Shutterstock.

Customers have started returning to Chipotle Mexican Grill restaurants much like they did before the pandemic, abandoning the digital orders they’d relied on for the past two-plus years in favor of simply ordering at the counter.

But now the company finds itself with an unusual problem: Its workers are not quite used to all that in-store business.

Executives with the Newport Beach, Calif.-based chain on Tuesday described a strategy to improve throughput inside its restaurants. They argue that it can generate stronger sales simply by teaching newer workers how to run restaurants with lobbies full of customers.

“Our general managers and teams have adapted well to our growing digital and growing in-restaurant business,” CEO Brian Niccol told analysts on Tuesday. “However, customers were waiting on digital orders and the front line was moving. But it could have been quicker. I know we can be better.”

The company, he said, has kicked off an effort to retrain its workers on “the fundamentals of our business,” including having food prepared and ready to serve, improving order accuracy and throughput for the in-store business.

Niccol also said that the company is rolling out a new labor management tool to ensure workers are in “the right place at the right time.”

Chipotle installed new customer-facing pin-pads allowing for contact-free payment and has a new training program that includes “digitally-enhanced” e-learning courses, videos and resources. It is updating its point-of-sale system and plans to invest in more technology such as Chippy, the company’s chip-making robot.

Chipotle executives implied that slowing service could be to blame for slowing sales since mid-May. The chain, which operates more than 3,000 locations, said that its same-store sales rose 10.1% in the quarter ended June 30. But they were on track for even better performance before that slowdown.

The company expects same-store sales to be in the mid-to-high single digits in the third quarter—including a 4% price increase set for August.

“We’ve got a lot of new people that are still getting trained up on, frankly, the basics of great throughput,” Niccol said. “That’s what our business is about. We’ve got to have our aces in places. You’ve got to have the expeditor. You’ve got to have the linebacker. You can’t work around those places and try to service the business. We have a lot of people who don’t understand how important some of those roles are.

It’s not just frontline workers, either. General managers, too. “A lot of these managers have gotten promoted over the last 18 to 24 months,” Niccol said. “So, we know there is upside in taking the combination of this new labor tool, deploying people correctly, and then ensuring that those people are trained and actually experience what great throughput is like.”

The issue highlights a challenge some restaurants are facing as consumers return to restaurants, but some of the digital demand remains. Many workers were trained during a period when that in-restaurant business was not that strong, so they could focus more on serving digital customers. As more of that business has shifted toward traditional in-restaurant demand, that has slowed some service.

Chipotle is seeing business shift back toward in-restaurant. In-restaurant sales increased 36% in the quarter, executives said.

The percentage of business that comes through digital orders has also slowed. Digital orders were 39% in the second quarter. That was down from 42% in the first quarter, and as high as 50% during the pandemic. Delivery, meanwhile, is a smaller percentage of the overall business.

Transactions were up 3.5% to 4%, CFO Jack Hartung said. Meanwhile, the average group size has shrunk. So Chipotle workers are serving more customers who make smaller overall orders and come in through a wider range of service options.

Company executives said that they began focusing on operations in 2019 in a bid to improve throughput, and that the effort was beginning to bear fruit before COVID hit. They said that improving speed inside the restaurants remains a big opportunity. But it just requires getting some of these more repetitions, they said.

“We have restaurants that are doing $6 million, $7 million” a year, Niccol said, quoting a number that is more than twice Chipotle’s $2.8 million average unit volume.

“That team [in those restaurants] has been together for years. And when all the COVID restrictions went away, they went back to running Chipotles really successfully. That’s why we’re so confident there’s so much opportunity in getting people the reps, getting them trained on the basics and just to have them experience the success they can have by following these basics.”

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