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Digital orders and higher prices fuel Chipotle sales

But traffic is down as the company works on efforts to lure more customers.
Chipotle

Chipotle Mexican Grill on Thursday said its same-store sales rose 3.3% in the quarter ended June 30, an improvement that boosted the company’s profit margins and led the company to increase its sales expectations for the year.

But that increase came largely thanks to higher check, as the company raised prices and customers ordered more queso following its introduction last year. Transactions declined 1.8% in the quarter.

Still, investors cheered the news: The company’s stock price spiked by more than 6% in after-hours trading on Thursday.

That would add to a strong year for the soon-to-be-California-based Chipotle, whose stock was up more than 50% year to date as of the close of trading.

Brian Niccol, Chipotle’s CEO, said the company is testing efforts that it believes will drive traffic in the coming quarters, including a new loyalty program and marketing. And he said that the company’s 4% price increase didn’t drive away customers.

“The price increase that we passed through has passed through nicely,” Niccol said. “We’re not seeing customer counts retreat versus anything we’ve had historically.”

The higher sales helped improve restaurant-level operating margins, which were 19.7% in the second quarter, up from 18.8% a year earlier. Restaurant-level margins are important to Chipotle, because they help fuel the company’s unit count growth.

Revenue increased 8.3% to $1.3 billion. Net income adjusted for one-time events rose 20.2% to $80.2 million, or $2.87 per share.

One area of strength in the quarter was digital sales through Chipotle’s website and mobile app, which increased 33% in the quarter.

Digital orders now represent more than 10% of the company’s sales, and Niccol believes online orders are a “multibillion-dollar opportunity” for Chipotle in the coming years. The company now has 4 million active users on its app and website.

Those orders include delivery. Those sales quadrupled in the quarter thanks largely to increased access and some promotions in the quarter. Delivery is now available in 1,700 of the chain’s nearly 2,500 locations and should be available in 2,000 “shortly.”

Executives have a lot of hope in delivery, which generally has higher average checks than normal as customers either add more items to their order or order in larger groups. The typical delivery order is $16 to $17, executives said, versus $12 for a traditional order.

Chipotle has been working feverishly to build the preparation capacity inside of its restaurants to handle a future in which a lot more of its orders are coming through digital channels.

That includes second makelines in many of its locations that are designed to prepare food for those digital orders.

The company is also expanding a test of pickup shelves in more markets this year. “Access is the No. 1 lever we can pull to drive sales,” Niccol said.

Executives also said that operations drive sales, too. “We know strong sales growth depends on operations,” Niccol said. “We are getting back to our roots.”

He said the company is seeing “encouraging signs” in key areas. The company has less employee turnover and is doing a better job of staffing restaurants to match sales level. It has improved customer satisfaction scores, and customers are making fewer complaints.

And Niccol noted that research gives the company hope that it can generate customer growth in the future. He said the company’s core customer includes younger, millennial or Generation Z customers.

“When people try the brand and have a positive experience, their intent to stay with the brand is higher than our competitors in fast casual and fast food,” Niccol said.

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