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Where does Chipotle grow from here?

With 2,500 locations, the company says it still has thousands of markets to add new restaurants.
Photograph courtesy of Chipotle Mexican Grill

Chipotle Mexican Grill last week opened its 2,500th restaurant last week, in Concord, Calif., not far from its new headquarters in Newport Beach.

For the burrito chain it was an important and symbolic milestone, a demonstration that it remains growing despite a host of challenges and a bunch of new executives.

And the chain is far from done, says Tabassum Zalotrawala, who was hired in December to be Chipotle’s chief development officer.

“We’ve only just scratched the surface on the domestic front,” she said in an interview with Restaurant Business. “Our opportunities are huge.”

How huge? “There are 3,000 trade areas still available to us,” she said.

Such prognostications tend to be famously optimistic. But Chipotle has plenty of reason to believe it can continue to expand its reach into new and different markets and do so profitably.

Before a series of food safety incidents hit the chain in 2015 and sent the company’s sales, profits and stock price tumbling, Chipotle was one of the most successful restaurant chains of any size in the U.S.

It was a profit-making machine, earning margins of more than 25% on stores that boasted average unit volumes of $2.4 million from two dayparts and locations that were typically in strip malls and lifestyle centers.

That enabled the company to pay off a new location in about a year and a half. That’s a remarkably short payoff period and helped fuel the company’s tremendous success and fueled a stock price that hit $750.

But that made unit growth a no-brainer—the chain has added nearly 1,000 locations since 2013.

And that growth continued even as sales declined sharply in 2016 following the food safety crisis.

The company remains far off its pre-crisis unit volumes, which were $2 million last year, but profitability is growing—restaurant-level margins were 17% last year.

What’s more, the company’s same-store sales rose 6.1% in the fourth quarter, including 2% transaction growth.

The chain is also rapidly proving that delivery and digital strategies, coupled with the ability to serve those customers efficiently, can drive sales. Digital sales rose 66% last quarter and now amount to nearly 13% of company revenue.

Investors have jumped on board enthusiastically. Chipotle’s stock price has more than doubled since Brian Niccol was named CEO more than a year ago and is back over $600 a share for the first time since late 2015.

Under Niccol, Chipotle has focused on making the chain more “accessible” to more customers. Its digital strategies, which have included such things as mobile order drive-thrus, pickup windows and a lot of delivery, have been aimed at improving speed.

The push for more accessibility extends into development. “I’ve got a laser focus on increasing access to Chipotle,” Zalotrawala said.

She said that the company needs to shift its model so it can go into more of these areas with white space. “We need to evolve our business model so it’s not a one-size-fits-all strategy,” Zalotrawala said. “Not all markets are created equal.”

She said she is working with the company’s design and construction teams to develop this new strategy in a manner that is “grounded in the brand ethos” and emphasizes its “uniquely authentic restaurant experience.”

The drive-thrus are a perfect example of finding ways to expand access while adapting to new, digital strategies. The mobile drive-thrus, or “Chipotlanes,” take an existing idea, a drive-thru, but make it available only for mobile orders so it maintains the Chipotle experience while still giving consumers an opportunity to get food from the chain without getting out of their car.

With Chipotle focused so intently on digital channels, Zalotrawala’s challenge will be to adapt the company’s model further, while also making that model adaptable to the newer markets the chain will tackle.

“It’s exciting to be in this role,” she said. “How do you make our lifestyle brand way more convenient and accessible to guests so they can choose us whenever, however they want to.”

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