As inflation hits a new 40-year-high and consumer sentiment continues to dwindle, Chipotle (CMG -1.11%) seems to be making a case that it's insulated from such pressures. During the first week in June, when national average gas prices surpassed $5 for the first time, Chipotle experienced a traffic increase of over 18%, despite raising its menu prices by about 10% year over year.  

Competitive position provides an advantage

This traffic pattern could be explained by the burrito chain's position against its fast-casual peers. Although Chipotle's prices are significantly higher than they were in 2020, Chipotle remains about 10% cheaper for consumers than Qdoba and Moe's Southwest Grill, according to industry analyst BTIG.

BTIG predicts the chain will remain a value leader, especially as the very definition of value seems to have changed. As younger, more health-conscious, digitally native consumers gain more spending power, "value" now means not only "affordable," but also "convenient, healthy, and hearty." With its digital infrastructure and its "food with integrity" brand positioning, Chipotle checks all of those boxes.

This likely explains why the spending climate is increasing in the fast-casual category in general, while consumers pull back in other dining segments. According to new data from Dataessential, 31% of consumers have increased their spending at fast casual concepts like Chipotle throughout the past year, while 44% say they are visiting fast-casual concepts at least once a week.

Conversely, Datassential finds that 49% of consumers say they are cutting back on restaurant meals in light of inflation. And according to data, foot traffic at full-service restaurants fell by 4% in the same period, while quick-service traffic was up over 7%.

Additional tailwinds

That's not to say Chipotle doesn't have headwinds, however. According to a USDA report, poultry prices are expected to jump nearly 15% this year.  Chicken entrees represent about 60% of Chipotle's sales mix, according to BTIG.

That said, commodity prices seem to be easing a bit after peaking in June, meaning Chipotle's biggest pressures will also ease.

Chipotle also has a lot of runway ahead of it in terms of unit growth. Currently, the chain has about 3,000 units, with plans to reach 7,000 within the next 10 years, which would put it on par with Yum Brands' Taco Bell. The company has outlined plans to open up to 250 units this year, with about 80% of those featuring Chipotlanes.

The Chipotlane model enables customers to order and pay ahead and generates about 15% higher sales than the chain's traditional restaurants, underscoring the heavy digital use of Chipotle's customer base. Indeed, well over 40% of all sales at the chain come from digital channels, and its customers are accustomed to using the app and, by extension, the loyalty program. Notably, the loyalty program currently includes about 28 million members.

This trajectory illustrates perhaps the biggest upside to Chipotle. Digital sales translate to higher margins, and digital customers visit and spend more.  As the company continues to ramp up its unit growth with a bigger focus on Chipotlane models, its digital mix should continue to grow as well. Restaurant stock investors should keep an eye on the company's percentage of sales from digital orders when Chipotle reports its second-quarter earnings call July 26.

Editor's note: This article has been updated to say that 31% of consumers have increased their spending at fast-casual concepts like Chipotle throughout the past year.