Early last month, Chipotle Mexican Grill (CMG -0.04%) announced the latest addition to its menu -- cilantro lime cauliflower rice. The company's latest plant-based option combines riced cauliflower, cilantro, lime, and salt, which appeals to consumers on low-carb and paleo diets, as well as vegetarians and vegans. Early feedback for the limited-time offering has been encouraging, which might result in a permanent addition to the menu.
On this clip from Motley Fool Live recorded on Feb. 5, "The Wrap" host Jason Hall and Fool.com contributors Danny Vena and Brian Withers discussed CEO Brian Niccol's history of innovation, the company's impressive growth in digital sales, and whether a breakfast burrito could be in the offing.
Jason Hall: Hey guys, let's talk about cauliflower rice, that sound exciting?
Brian Withers: I haven't tried it and I'm not tempted.
Jason Hall: I love it. I love cauliflower rice.
Brian Withers: Really?
Jason Hall: Yeah, I do. I absolutely do. I really, really do. Because in general, for me, rice is just like a vehicle to deliver ...
Danny Vena: Food?
Jason Hall: ... some really spicy, very flavorful other thing. I think it's perfect for that.
Why are we talking about cauliflower rice? Because the good folks over at Chipotle charge an extra two bucks a pop for cauliflower rice, and it is helping drive some strong comps. The company reported earnings. Withers, what were the comps?
Brian Withers: 5.7%. It doesn't sound like a big number during the pandemic and the restaurants where folks ...
Jason Hall: This is big because this quarter, the quarter that they just reported a year ago, was a really good quarter for them, so to have 5% comps on that really good quarter was really impressive.
Brian Nichols gets a lot of credit. Since he came over from [Yum! Brands (YUM 2.82%)] Taco Bell, he has really pushed two things. He's pushed the company to deliver on their digital platform, so delivery, the mobile ordering where you can walk up and grab your bag right off the shelf and walk right out. Putting technology in the restaurants for that second make-line to handle those orders, so during peak hours, they get better operating leverage and better customer service. They call that has been great.
But his also pushed them on food innovation. Doing more stuff like cauliflower rice and this is the most important question I'm going to ask you guys today. This is by far the most important question. Pointless prognostication for us here, Danny Vena. What year when we finally get a breakfast burrito from Chipotle? Come on.
Danny Vena: I would not be surprised if Brian Nichols is already working on that. I think what he is doing though is, he's looking at these incremental changes that will drive the biggest margins and something like cauliflower rice will do that.
When you start talking about these breakfast burritos, then you're talking about opening up a restaurant earlier, paying people more money. I think what he is doing is smart.
He is leveraging what he's got now and increasing the margins off of little things that they can do. I think at some point, later on, once he has exhausted all of his other ideas, then you might see a move to a breakfast burrito.
But right now, I think he is taking a measured approach that's going to increase the top line, that's not going to increase incremental expenses, so they're going to get more bang for the buck. But I expect the breakfast burrito's coming and I say we won't see it until at least 2023.
Jason Hall: Breaking my heart here Danny Vena but, oh boy oh boy, they're not incredibly good at squeezing that operating leverage out. No doubt about that. Brian Withers, what do you think here? When are we going to see the morning breakfast innovation in the form of a breakfast burrito?
Brian Withers: You tease about their digital sales as a percent of revenue and so I just want to share that real quick, before I answer your question. [laughs]
Jason Hall: It's incredible.
Brian Withers: It's amazing. Look at this, and this goes back to Q3, 2016. They didn't report it for a couple of quarters, and it just fifth. Almost 50% of their revenue is through digital. Either delivery orders or somebody goes and they pick it up in the store. Which is a great way to help with margins. The stuff through the second make-line is faster, it's cheaper.
Jason Hall: They're really not having to add labor to do that for the most part because that second make line is that's what they're doing with their food-prep already on. That's where they cook in the meat and doing all the prep stuff that comes out to the make-line, so they're not having to add a bunch of labor to do that.
Brian Withers: No. yeah. They can start that second make-line would like two people to have a 40% higher throughput than just the customer stuff with like seven people on the line. But the breakfast burrito, that's a tough gig. They have 33,000 employees across a store base of, I want to say, 2,700 stores. Almost 2,800 stores. So to roll out breakfast as a widespread, not only do you got to get a menu thing, right?
Jason Hall: All they need is eggs and two people and they can do this. They have everything else.
Danny Vena: No, no, no, no.
Brian Withers: You need bacon for breakfast, Jason.
Jason Hall: You can also have bacon for lunch, and you know what else you can have for lunch? You can have a breakfast burrito for lunch, and they've done chorizo, right?
Brian Withers: You and I need to go buy one share at Chipotle, make some signs. Go to the next shareholder meeting, "breakfast burrito, or die," like the cows and the Chick-fil-A commercial.
Jason Hall: There you go.
Brian Withers: That's what we're doing.
Jason Hall: Love it. But I just sold all my Chipotle last year.
Brian Withers: All you need is one share to go to the shareholders' meeting.
Jason Hall: That's true. All right, guys. This was fun. But I wanted to highlight that they really are incrementally doing some smart things. The way they are innovating, these are operating leverage things. Two dollars for cauliflower rice. They probably pay $0.50 cents for the cauliflower rice that's going on your burrito or your bowl. If that. It is a genius move.
Brian Withers: It's a smart business move. Absolutely.
Jason Hall: Absolutely genius, it really is.