How Brian Niccol is changing Chipotle

The chain plans to evolve its marketing and product pipeline and rely a lot more on technology.
Chipotle Mexican Grill

The Chipotle Mexican Grill of Brian Niccol is going to be a different restaurant than the Chipotle of Steve Ells.

Specifically, the burrito chain is going to be a more tech-savvy place that uses marketing and innovation to drive more traffic.

The chain’s 2,500 locations will have pickup shelves for digital orders, a loyalty program, offers targeted at afternoon and late-night customers and a steady stream of new products designed to get customers in the door more frequently.

And the company will have a much different marketing message.

In that sense, the company will be following in the footsteps of chains such as Panera Bread and Starbucks, as well as Niccol’s former chain, Taco Bell—chains that used technology and marketing effectively and targeted new dayparts.

“I can easily see a future where Chipotle more than doubles revenue to more than $10 million,” Niccol said.

Investors largely shrugged off the news. The stock fell more than 6% on Thursday, effectively ending the honeymoon Niccol enjoyed on Wall Street. Chipotle stock had risen 82% since he was named CEO in February, suggesting perhaps that high expectations were the chain’s undoing on Wall Street.

“We think [Chipotle] is taking the right approach to drive a more mature, disciplined organization and regain traction with guests,” Jefferies analyst Andy Barish wrote in a note. But he said there were “few surprises on the call,” outside of the delivery and loyalty news, as well as the announcement of as many as 65 closures.

Chipotle unleashed the biggest change in the company’s history earlier this year after struggling to recover from a brutal sales slide after a series of food safety incidents in 2015. Even after improving last year, its average unit volumes remain below $2 million; at one point those volumes were approaching $2.5 million.

Getting those volumes and improving margins are key to driving that growth. The chain has “one of the best economic models” in the industry, Niccol said. “Driving transaction growth is the single biggest lever to drive our economic model, but we will also be scrappy in finding efficiencies to add a tailwind to our economic model.”

The biggest lever Chipotle believes it can pull is throughput, which it is going to rely heavily on technology to accomplish.

The company has already added a second production line to most of its restaurants and is adding digital screens to those lines so workers can better read the orders coming through, which should improve speed and decrease errors, Niccol said.

In Denver, the company added a window near its kitchen for digital-order pickup, a move that on its own increased digital sales at that location by double digits. The company explored the possibility of adding such windows at all of its locations but ultimately decided that would take too long.

Instead, it added shelves in some locations for digital pickup orders, and the company plans to expand that test in new markets later this summer.

“In many of our restaurants, it is unclear to our customers where to pick up their order,” Niccol said. The shelves solve that, while also marketing the chain’s digital efforts.

As it is, digital orders make up almost 9% of Chipotle sales, or nearly $500 million, “with very little advertising.”

With increased awareness and an improved experience, “Over time we believe this can be a multibillion-dollar opportunity.”

But Niccol used the test of the shelves to highlight the company’s new testing procedures. Niccol said there was “no process for scaling and communicating innovation” and “no validated menu innovation pipeline” when he arrived in March.

That’s a key element for the company’s future, because under Niccol the company clearly plans to bolster its menu innovation even as it promotes existing menu items—such as its vegetarian Sofritas option for tacos, burritos and bowls.

The company is already testing new quesadillas, nachos, avocado tostadas and Mexican chocolate shakes in New York.

“The goal is to thoughtfully add delicious menu items,” he said, noting to “expect more tests in the second half of the year.” But he also said the company’s new testing procedures will give Chipotle more confidence that new items will work.

The chain is also considering a “happy hour” offering, such as $2 tacos with a drink between 2 p.m. and 5 p.m., and is exploring a “similar offer for increased late-night sales after 8 p.m.”

Marketing is going to be a key component in the evolved Chipotle, something the company communicated immediately with the hiring of CMO Chris Brandt, who, like Niccol, had spent time at Taco Bell.

And already the chain’s ads have changed and its strategy has evolved. The company is sponsoring an esports team playing the popular “Fortnite” game, for instance.

And Brandt himself envisions turning Chipotle into a “purpose-driven lifestyle brand” that “people want to know about and be a part of and wear it like a badge.”

That includes “showing people we can have fun.”

“When a brand has purpose and is visible, doing fun things that are part of the culture, people are more interested in it and want to be part of it,” Brandt said. “That’s how you can be a lifestyle brand.”

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