Chipotle (CMG 0.40%) has been slowly turning its business around since its 2015 e. Coli scandal. New CEO Brian Niccol, who previously led Taco Bell, has shown that it's possible to make changes and remain true to the brand's "food with integrity" mission.
The change in leadership has paid off, and the company put up solid second-quarter numbers. Revenue for the quarter rose by 8.3% to $1.3 billion, and comparable-restaurant sales climbed by 3.3%. Diluted earnings per share fell 28% due to "expenses related to restaurant asset impairment, corporate restructuring, and certain legal costs." Without those one-time charges, they would have come in at $2.87, a 27% increase over the same quarter in 2017.
"While I'm encouraged by our progress, we still have a lot of work to do," Niccol said during the Q2 earnings call. "We have an opportunity to improve throughput, consistent execution of great food, and consistent delivery of a great atmosphere."
Chipotle has added a second "make line" in some of its stores. Image source: Chipotle.
Guests are happier
While the company's food safety issues started its decline, they were not Chipotle's only problem. The company also had issues with the speed of its service and customer dissatisfaction. Niccol said that has turned around.
"We have seen a meaningful decline in guest complaints and with that our guest satisfaction scores have improved since we started measuring them last year," he said. "This tells us that we made progress and that our guests are noticing the difference. We know that when the food is delicious, the field of the restaurant is great and we removed the friction from the flow of the order process, no matter the channel we delight customers."
There is room for digital growth
Chipotle's annual digital sales currently come in at approximately $0.5 billion. That leaves a lot of room to grow, according to Niccol, but he also noted that digital sales climbed by 33% in Q2. That's up from 20% growth in Q1; digital sales now account for 10.3% of the company's total sales.
"We now have 4 million active monthly users across our app and our website, a 65% increase since the end of last year," the CEO said. " Delivery in group occasions was particularly strong this quarter. Delivery sales quadrupled in the quarter, and we know from our customer research that improving access to Chipotle is an important growth lever, whether it be through adding more restaurants or enabling more convenience, like delivery."
Delivery, which can be ordered via app or the web, is now offered at 1,700 Chipotle locations. The company expects that number to grow to 2,000 by the end of the year.
The second line is working
One of Chipotle's strengths -- the fact that every customer creates a custom order -- is also a weakness. Creating each order takes time, and adding in digital orders further slows down the process. To combat that, the company has added a second "make line" behind the scenes in about 500 of its restaurants.
"Chipotle's second make-line enables the business to handle the incremental growth without any impact on throughput or the in-restaurant experience," Niccol said.
The company plans to add second make lines in another 1,000 restaurants by the end of 2018.
It's a slow process
Niccol only spoke vaguely of menu innovation, referring to the items the company has shown off at its New York test kitchen. The CEO actually declined to comment on the specific rollout plans for any of the new offerings it has previously shown off.
That shows that, while Niccol has been aggressive in addressing execution at the chain's restaurants, he is not going to rush items to the menu -- he respects what made the company successful. This approach should reassure anyone who was worried that he would bring the Taco Bell wacky limited-time-offer approach to Chipotle.
