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Why Chipotle Sees Room to Step Back From Free-Delivery Deals

By Demitri Kalogeropoulos – Jul 23, 2020 at 10:03AM

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The promotion served its purpose through the early days of the COVID-19 pandemic.

Its free-delivery campaign helped digital sales soar during the early months of the COVID-19 pandemic, but Chipotle Mexican Grill (CMG -0.66%) fans shouldn't expect the deal to be a staple promotion moving forward.

On Wednesday the fast-casual giant revealed several positive results in its delivery channel, including rising customer satisfaction and reduced fulfillment times. These wins helped Chipotle gain market share during a brutal selling environment for most of the industry.

A young woman entering her credit card information on a laptop.

Image source: Getty Images.

But the chain has noticed that shoppers are increasingly ordering ahead for pick-up, whether it's through the Chipotle app or by using partners like Uber Eats. That selling channel has been its fastest-growing niche since stores started reopening in recent weeks, and so the company is pouring cash toward extending its drive-thru service, which executives call "Chipotlanes."

Free delivery is also a drag on profitability, so the chain is eager to shift toward using its store base more as a pick-up fulfillment network than a hub for an army of delivery vehicles. "With free delivery promotions likely to be less frequent and us pivoting toward Chipotlanes," CEO Brian Niccol said in a conference call with investors, "we are optimistic that the order ahead transaction will continue to be a big driver of future growth which should benefit both sales and margins."

Demitrios Kalogeropoulos owns shares of Chipotle Mexican Grill. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

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