COVID-19 has taken a big bite out of most restaurant chains, but there are a small number of fast-food delivery brands that continue to provide quick nourishment for customers. Chipotle Mexican Grill (CMG -1.34%) came back to growth after a small dip at the beginning of the pandemic, and is now back on schedule to deliver high gains as it delivers burritos and fajitas. Can it keep serving up through 2021?
A grill unlike any other
In the third quarter ended Sept. 30, 2020, revenue grew 14%. Comparable sales grew 9%, and most of the rest was from new stores. The chain opened 44 new stores in the third quarter, cranking out new sales while feeding its clientele.
For comparison, during a similar time period, competitors didn't perform nearly as well.
| Metric | Comps Growth |
|---|---|
| Shake Shack | (17)% |
| Texas Roadhouse | (6)% |
| McDonald's | (2.2)% |
| Chuy's | (20)% |
Data source: Shake Shack, Texas Roadhouse, McDonald's, Chuy's.
Image source: Chipotle Mexican Grill.
Digital played a strong role in Chipotle's success, soaring over 200% in the third quarter and accounting for almost half of orders. The company kept 80% to 85% of digital sales even as it recovered 50% to 55% of store sales, leading to higher growth.
Margin was pressured in the third quarter due to pandemic-related headwinds, and some of that should disappear in the coming year if vaccines get rolled out and the economy reopens. However, it also expects marketing expense to increase in the near future as it rolls out new menu items.
Does Chipotle just offer better food than its peers? Perhaps, but its success is likely due to its disciplined and creative approach to business. CEO Brian Niccol laid out five key strategies that the company is implementing, which revolve around digital innovation, good food, and a strong brand. Other brands get most of their growth from new stores, but Chipotle's strong comps score is critical to its outperformance. The bottom line is that customers love the brand.
Sizzling future prospects
Chipotle operates 2,710 stores as of the end of the third quarter. That's a lot, but Niccol sees an opportunity to double U.S. restaurant count. As for the coming year, restaurant development may be slower than usual. He said: "While the current environment prevents us from being able to provide reliable new store opening guidance for 2021, our development team has built a very robust new unit pipeline, which, under normal circumstances, would lead to opening around 200 restaurants next year."
The company's expecting to open 60% of new stores with a Chipotlane, or drive-thru, which has proven to increase customer access and stores sales.
Image source: Chipotle Mexican Grill.
There are also many opportunities in foreign markets, where Chipotle already has a strong presence. Niccol envisions the company operating 6,000 restaurants with margins over 25%.
Chipotle sees exciting prospects with its loyalty program, which has 17 million people. It expects the program to become an important part of digital, and it plans to use data from enrolled members to improve the customer experience.
The company will continue to open restaurants and build its presence in global markets over the next 12 months. Digital will remain a strong part of operations, margins should widen, and Chipotle should keep up revenue and comps growth through 2021. The stock gained 65% in 2020, and nearly 200% since March lows. It broke through $1,000 in May, and trades at 165 times trailing 12-month earnings. That's fairly high objectively, but with lots of space to grow and a winning model to get it done, Chipotle and its stock should continue to see gains over the next year.
