Operations

Chipotle to mid-sized cities: We’re coming for you

The burrito giant this week upped its long-term openings forecast, saying it is seeing strong momentum in a relatively new strategy focused on previously overlooked locations.
Chipotle Mexican Grill
Photograph: Shutterstock

Chipotle Mexican Grill has long said it has the runway to become a 6,000-unit chain in North America.

This week, however, the nearly 3,000-unit burrito brand added a significant chunk of asphalt to that runway, revealing it could instead become a 7,000-restaurant chain thanks to a largely new strategy focused on small- to mid-sized cities.

“Historically, the brand shied away from smaller communities that weren’t in contiguous markets, where oversight could be challenging,” Chief Restaurant Officer Scott Boatwright said late Tuesday, following the chain’s release of its fourth quarter earnings.

But the fast casual is now starting to see strong returns from its locations outside of major cities, in places with populations between 20,000 and 100,000 people, driven in large part by the strength of its order ahead-pickup Chipotlanes, Boatwright said.

What’s more, the chain can scoop up the real estate for relatively cheap, compared to major markets.

“We can get into these markets with typically lower occupancy costs,” Boatwright said. “And the demand in these markets has been extraordinary.”

As an example, Boatwright cited Chipotle’s store base in the Florida-Georgia area. There’s a hub of restaurants in Jacksonville, Fla., and another about 140 miles away via I-95 in Savannah, Ga. But the operator can connect the dots in between, adding Chipotles in smaller cities like Brunswick, Ga., Pooler, Ga., and Macon, Ga.

“The challenge, really, is just to make sure that we have a strategic process or strategic approach so that we can keep an eye on these,” Chipotle CFO Jack Hartung told investors Tuesday. “So, a field leader, for example, they have to travel 300 miles to get to a remote, small-town location. That’s very hard to do. But if you string a bunch of small towns together where there’s one that’s 50 miles away and another that’s 50 miles away, you string these along so that a field leader can, over a number of days, make sure that he gets touches with those restaurants … It’s a home run.”

With the chain predicting average unit volumes “well beyond” $3 million in the not-too-distant future, it’s easy to see why unit growth (and relatively inexpensive unit growth at that) is paramount.

Chipotle said it is currently building a real estate pipeline that will allow for 8% to 10% unit growth each year, with more than 80% of those new restaurants being built with a high-margin Chipotlane. The Newport Beach, Calif.-based brand added 215 locations in 2021.

“I will tell you, obviously, COVID made it very hard to open 215 restaurants,” CEO Brian Niccol told investors. “That wasn’t an easy thing … The pipeline is very strong. And we’re fortunate people want Chipotle in their towns, the landlords want Chipotle in their centers.”

Systemwide, restaurants with Chipotlanes have higher volumes and higher margins than those without, the chain said. They only cost about $75,000 more to build than a traditional restaurant.

“With the extra convenience channel of Chipotlane, it just makes it more doable from a financial standpoint and a convenience standpoint to go into these small towns and seam locations that generate superior returns,” Hartung said. “Chipotlane continues to perform at exceptional levels.”

Chipotle executives declined to provide specifics on how well the current smaller-city locations are performing, but Boatwright said, “they are exceeding our two-year expected rate of return on cash.”

“Our guests in these small communities come out and support our brand in such a meaningful way,” he added.

The strategy has been made possible, Boatwright said, by Chipotle’s elevated public persona in recent years.

Chipotle is “beginning to behave like a national brand,” he said. “Chipotle is widely known.”


Same store sales earnings Q4 2022 highlights


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