Chipotle Mexican Grill (NYSE:CMG) recently landed a lateral hire who can drive the rapidly growing fast-casual chain to even greater heights. Curt Garner, who had previously served as the chief information officer at Starbucks (NASDAQ:SBUX), will assume the same role at Chipotle beginning on Nov. 23. As a shareholder of both companies, I have seen the incredibly positive impact technology has had on Starbucks and hope Garner can have a similar effect on Chipotle.
Most tech-savvy retailer
Starbucks is, on its face, a coffee shop. But like most modern corporations it is also a technology company. You'd be hard pressed to find a retailer that has leveraged technology as well as Starbucks has to enhance the customer experience and enrich shareholders.
Starbucks Mobile Order & Pay has been rapidly rolled out to all domestic company-owned stores, with international expansion planned for 2016. The company offers in-store wireless phone charging and has created one of the most robust loyalty programs, with over 10 million active domestic members. Mobile payments make up around 20% of total U.S. transactions, and that number has been growing rapidly.
On the company's Q3 earnings conference call CEO Howard Schultz said, "digital technologies are enabling significant expansion of our My Starbucks Rewards loyalty program. MSR continues to be our most important business drivers as new members contribute not only short-term increases in revenue and profit, but also to long-term loyalty for years to come."
To understand the importance of technology in the success of Starbucks' loyalty program one need only think back to loyalty programs of the past. Which would you prefer, a paper business card with spaces for 12 stamps that you may lose, or an interactive app? Starbucks can immediately contact millions of customers with promotions, free app and music downloads, and information about their accounts. Mimicking this platform should be a goal for Chipotle.
Smaller footprint, more upside?
Starbucks has over 7,000 domestic company-owned stores, while Chipotle has less than 1,900. The opportunity to roll out new technology with new stores is very promising, and I would expect future locations -- designed with the new tech in mind -- to fully capitalize on trends such as mobile ordering, loyalty programs, and a fleshed-out app.
While the short- and medium-term future of Chipotle is the growth of its namesake stores, the long-term future for the company will include multiple properties under one corporate umbrella. Shophouse, Pizzeria Locale, and potentially other concepts could eventually become more important for the company's growth prospects. For this to occur, a technology platform that unifies what may otherwise look like disparate brands could become crucial. Imagine if after buying a dozen burritos on your Chipotle app, a notification popped up alerting you that you now have earned a free pizza at Pizzeria Locale. A strong mobile tech platform can promote this cross-pollination and help Chipotle introduce all kinds of new brands using its proven business model.
Lines, and throughput
The success of the Chipotle business model has always ultimately boiled down to two things. The first is sustainable, high-quality, and well-sourced ingredients. Without good food, the business would not be as successful as it is. The second is the limited menu size and the physical setup of the restaurants, which allows for an incredible level of throughput. Even during the busiest lunch rush, when lines may wrap around outside the store, loyal customers will still saddle up. They know that in a matter of minutes they'll be out the door with their burrito or bowl.
While long lines are great, because they mean the location is a hit, businesses don't want the fear of long waits to drive customers away. Chipotle has had some success with order-ahead options, which can somewhat lessen wait times at peak hours but the possibilities for using technology to improve the customer experience can't end there. Loyalty programs are great advertising that help to drive repeat business and Starbucks has shown how powerful this can be.
A strong mobile presence will become even more important as the company begins a national roll-out of its other brands. Loyal Chipotle customers can be alerted and incentivized to try the new concepts and may become brand evangelists themselves. So far I've found Chipotle's app, in-store mobile payments, and nonexistent loyalty program to be lackluster at best. Curt Garner's hiring should help to turn these weaknesses into strengths. If, at his new job, he can mildly approximate the success he had at Starbucks, then investors should see encouraging results.