The coronavirus pandemic has been particularly hard on restaurants, as local restrictions forced many to temporarily shut their doors during the height of the pandemic. Those with a digital presence were still able to serve their customers. As a result, they have not only survived but thrived while some competitors were forced to permanently close.
Chipotle Mexican Grill (CMG -0.33%) and Starbucks (SBUX 1.38%), two top restaurant stocks, are using technology to separate themselves from the rest of the industry. Let's take a closer look at what makes these businesses stand out in what has been a difficult operating environment.
Image source: Getty Images.
1. Chipotle
The unstoppable Tex-Mex fast-casual chain just reported a superb year, growing sales 26.1% and earnings per share 82.9% in 2021 compared to the prior year. Besides selling better-quality fast-casual food at affordable prices, Chipotle has emphasized its greater accessibility and convenience for its hungry customers.
As of Dec. 31, Chipotle counted 26.5 million Rewards members. This is already an incredible feat but even more remarkable when you consider that the program launched in March 2019. Loyalty members can earn points every time they eat at Chipotle, which can be redeemed for food, merchandise, and even to donate to a cause of your choosing.
"As a result of this pandemic, many new consumers were introduced to Chipotle via our digital channels and are now using us for alternative and, at times, incremental occasions," CEO Brian Niccol highlighted on the Q4 2021 earnings call. Roughly two-thirds of Chipotle's customers use in-person dining as their primary eating occasion, leaving a huge opportunity to convert many of them over to the digital side.
In the most recent quarter, 41.6% of sales came from the digital channel, which includes ordering on the website, mobile app, or through a third-party delivery service. Customers benefit by being able to order in ways that are most convenient for them, a situation that encourages repeat business for Chipotle.
Management can collect a ton of data on its Rewards members that can be used to continuously improve the platform by driving engagement, gamifying the experience, and even affecting the way new menu items are introduced. For example, in March 2021, quesadillas were introduced as a digital-only offering, meaning that those who wanted to try the new item needed to download and register for the app.
Additionally, Chipotle locations with the drive-thru option, called a Chipotlane, usually generate greater sales volume than stores without one. That's because more transactions are not only digital, but they tend to be order-ahead. This results in higher revenue, profits, and returns per location.
2. Starbucks
Because Starbucks is a global business, its latest financial results have been negatively impacted by the uneven pandemic recoveries in various markets across the world. In Q2 2021 (ended Jan. 2), same-store sales in the U.S. jumped 18% versus the prior-year period, while in China, they fell 14% due to strict government lockdowns.
While Chipotle is relatively new at incorporating technology into its business, Starbucks has been at it for a long time. In fact, the coffeehouse chain's Rewards program was launched in 2009 in the U.S., and it now has 26.4 million 90-day active members. Customers can earn points (called stars) that can be redeemed for coffee, food, and merchandise.
What's more, Starbucks constantly introduces personalized offers and games to drive higher engagement. During Q2 2021, 53% of revenue at U.S. company-operated locations came from loyalty members.
In China, Starbucks' second-biggest market, which just eclipsed 5,500 stores, there are now nearly 18 million Rewards members. These customers represented 75% of sales in the most recent quarter. As Starbucks tests and opens new innovative retail formats built for dense urban areas, expect the importance of technology to only rise for the business in China.
Selling coffee is a lucrative business model because it lends itself to repeat purchasing behavior. And this is the perfect situation for a loyalty program. For Starbucks' customers to get the most out of their Rewards experience, they must load up their mobile apps with a cash balance before using it to buy coffee or food at a store. As of Jan. 2, there was almost $2 billion stored in gift card balances and in the loyalty program, which is essentially interest-free financing for Starbucks.
The business is also able to amass a ton of consumer data that can be used to introduce new menu items and influence pricing decisions. And having a constant line of communication with customers is critical for Starbucks to remain a relevant, popular consumer brand.
