THE RATINGS GAME
Chipotle Mexican Grill Inc. is hard at work adding drive-thru “Chipotlanes” to restaurants, but Chief Financial Officer Jack Hartung says the idea wasn’t always popular internally.
The issue with drive-thrus and other changes to the business, according to Hartung, was whether it was in keeping with what the Mexican fast-casual chain aims to be.
“It was controversial,” Hartung told MarketWatch after the company reported fourth-quarter earnings on Wednesday.
Customers associate Chipotle with the way in which they place their order: passing by a row of ingredients like rice, beans and guacamole, choosing what they want, watching as food is being prepared in the kitchen.
Not us releasing all our recipes 🤭 pic.twitter.com/vet9dEqUWU
— Chipotle (@ChipotleTweets) February 3, 2021
That process is eliminated when an order is placed on a digital app or picked up at a Chipotlane.
“The idea of trying to transform into a digital experience or driving up to the window was, ‘Are we talking about fast food?’” Hartung said.
Ultimately, as in the case of so many other things, COVID-19 shifted many perspectives. Though, to be sure, many of the changes happening at Chipotle began even before the pandemic.
“The essence of Chipotle is not about drive-thrus, digital or delivery,” he said. Rather, it’s the company’s food, how it’s sourced and made, for example.
“Now,” he says, “customers can have the convenience of the fast-food experience but elevated food.”
Chipotle reported fourth-quarter profit that fell short of expectations, but sales that were just ahead of the Street estimates.
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For 2021, Chipotle is guiding for 200 new restaurants. By the end of 2020, there were 170 Chipotlanes. Around the world, there are 2,750 restaurants. Restaurants with Chipotlanes outperformed the ones without in the fourth quarter.
“These results reaffirm our strategy of an accelerated pivot towards Chipotlane sites,” Hartung said on the earnings call, according to FactSet.
“Not only will this enhance customer access and convenience, but it also helps increase new restaurant sales, margins and returns.”
In addition to Chipotlanes, the company is testing car-side pickup and has a digital-only restaurant in West Point, N.Y.
“I think you’ll see different shapes and sizes,” Hartung told MarketWatch, referring to the various Chipotle formats that customers could see in the future. The most important thing, he says, is that the location suits the needs of the business and of diners.
For analysts, digital and restaurant development will be key to the company’s continued growth. Menu innovation will also play a significant role. The return of carne asada was met with “healthy demand” in the fourth quarter, the earnings release said. And executives say the limited-time cilantro-lime cauliflower rice was a hit with customers.
“We continue to believe that accelerating access through Chipotlanes will not only unlock menu innovation, but also allow the company to venture into new dayparts such as late-night and eventually breakfast,” wrote BTIG analysts led by Peter Saleh.
“The company’s favorable long-term positioning, unit economic recovery and unfolding sales drivers like stronger menu innovation, digital and drive-thru keep us positive.”
Hartung says there’s “nothing on the drawing board” for late-night or breakfast, but the company hasn’t ruled it out.
BTIG rates Chipotle stock buy with a $1,600 price target.
“We believe Chipotle is poised to see accelerated market share gains in a post-COVID environment, resulting in sustained growth above pre-COVID levels and an expanding premium relative to its pre-COVID valuation,” wrote Wedbush in a note.
Wedbush rates Chipotle stock outperform with an $1,800 price target, up from $1,600.
“Chipotle offers some of the most compelling unit growth prospects within the restaurant industry, especially given the success of the new Chipotlane prototype,” wrote Stifel analysts in a note.
Chipotle stock has slipped 1.3% in Thursday trading, but has soared 67.4% over the last year. Shares closed Wednesday at $1,499.99.
The S&P 500 index is up 17.2% for the past 12 months.