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Chipotle Management Talks Digital Sales Growth, Chipotlanes, and More

By Daniel Sparks - Nov 22, 2019 at 10:45AM

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Fast-casual giant Chipotle Mexican Grill (CMG 4.05%) has seen incredible growth in 2019, with comparable-restaurant sales growth accelerating once again in Q3 to an impressive 11% growth rate. This helped revenue jump 14.6% year over year and non-GAAP (adjusted) earnings per share pop 77%. 

Strong performance has been driven by soaring digital sales, operational innovation, and new menu items. But can the burrito chain keep up this momentum? Based on management's optimistic commentary in the company's third-quarter earnings call, Chipotle seems to have a number of initiatives underway that can help drive more strong comp growth.

Here are three areas of Chipotle's business that management is excited about.

Chipotle's Carne Asada Burrito bowl

Image source: Chipotle.

Chipotle's rewards program is in its early innings

Since its launch in March, Chipotle's rewards program has quickly gained steam. By the end of Q2, rewards members already numbered 5 million. By the end of Q3, this figure had hit 7 million.

While CEO Brian Niccol emphasized that these are still early days for the rewards program, he also suggested that it will likely evolve into a meaningful driver of sales. "We expect this lever to become a bigger driver over time as we gain more experience gathering customer insight, while continuing to expand our digital platform," he said.

Later in the call, Niccol said the company has seen promising results with its marketing experiments using customer data from its rewards program. "The database marketing is showing signs of being a really meaningful growth lever going forward," he noted.

Delivery is a catalyst for digital sales

Chipotle's digital sales continued to be an important pillar in the company's growth strategy. Digital sales during the period increased 87.9% year over year and accounted for 18.3% of sales. One driver for Chipotle's momentum in digital, Niccol said, is delivery.

"Consistent with past quarters, delivery remained a key driver of our digital growth given enhanced capabilities on our app and website, as well as our expanded availability for more than 97% of our restaurants," Niccol said.

Chipotlanes look like promising investments

Given the early success of Chipotlanes, the company shifted its retail strategy during Q3 to plan for more Chipotlanes at new stores than previously planned. The economics of Chipotle stores with drive-thrus are simply too good to pass up.

"[D]igital business [at restaurants with a Chipotlane] is roughly 50% bigger and the driver of that additional growth is our order ahead business, which as you know has got the best margin associated with our business going forward," said Niccol.

It's worth noting that management estimates the incremental costs of adding a Chipotlane to its stores is only $75,000 per restaurant. "So our optimism [for Chipotlanes], even though it's very early, is very strong and the economics with even a modest increase in sales at that kind of incremental investment is going to be very attractive," explained Chipotle CFO John Hartung.

With growth drivers like these on the horizon, Chipotle will likely continue to deliver strong growth in Q4 and into 2020.

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