Given that Chipotle (CMG 0.17%) beat both top- and bottom-line estimates last moth, now's the perfect time for investors to assess whether this company can continue to deliver tasty, market-beating returns. Today, we'll take a look at a few key drivers for the popular burrito chain.
Not your average fast-food joint
Founder and current CEO Steve Ellis has a very lofty goal: completely changing the way people think about fast food. For starters, he makes sure that Chipotle uses only high-quality ingredients and classic cooking methods and takes cues from fine-dining restaurants when designing stores.
Ellis has also focused on creating a unique culture inside Chipotle. Its focus is not just on serving tasty "food with integrity," but also the people who work there. Approximately 96% and 99% of Chipotle's salaried and hourly management ended up in those roles through internal promotion -- a rare corporate feat. Happy employees tend to be more productive and result in happier customers, but shareholders benefit as well. A study from 2011 found that a portfolio comprised of Fortune's "100 Best Companies to Work for in America" significantly outperformed all benchmarks it was tested against.
It's details like these that add up to make for a unique dining experience that helps Chipotle stand apart from its competition. And in a world as cutthroat as the restaurant business, differentiation is paramount.
Fast food meant to be enjoyed slowly
Throughput -- the number of customers that can be served each hour -- provides a crucial measurement of how much revenue a store can generate. However, throughput also has a less heralded benefit: increased customer satisfaction. Chipotle's management claims that it has such high customer loyalty because it has great-tasting food and is able to serve food fast "without having a fast food experience."
In the years since initially setting their throughput high-water marks in 2007, management has devoted a lot of time studying throughput. Chipotle increased throughput during its peak lunch hour on Fridays by two transactions this past quarter. However, management admitted it was disappointed that it didn't see even more improvement. This led it to introduce new initiatives during the conference call designed to improve throughput:
- The four pillars are now part of each manager's semiannual bonus measure.
- New throughput goals tailored to each restaurant have been implemented.
- Execution of the four pillars is now a prerequisite to becoming a restaurateur.
- Field operators are now being trained to understand the importance of creating a great culture around the four pillars, not just speed of service.
Chipotle has finally returned to its pre-recession throughput levels, but it remains to be seen just how successful these new initiatives will be in pushing throughput even higher. Management is clearly focused on improving this key driver, so investors will definitely want to keep an eye on throughput levels in the future.
I hope you enjoyed this first look at a few of Chipotle's key drivers. Be sure to check out our key drivers for Coach (part 1 and part 2), and stay tuned. We'll be back soon with two more key drivers that could affect Chipotle's future.
