Chipotle shared a transformation plan called “Recipe for Growth” on Tuesday based on five key strategies, CEO Scott Boatwright said in an earnings call.
The announcement followed Chipotle reporting a 2.5% decline in comparable sales during the fourth quarter, due to a 3.2% decline in transactions that was slightly offset by a 0.7% increase in average check, according to an earnings release.
Despite an increase in revenue for the quarter and year, Chipotle reported negative comparable sales for three out of four quarters, reversing a yearslong trend of same-store sales growth. Chipotle is the most prominent fast casual chain to post negative same-store sales last year as consumer preferences and spending shifted away from the segment. Sweetgreen posted negative comparable sales for three straight quarters while Wingstop declined for two quarters last year.
Chipotle’s strategy will focus on strengthening the core by culinary and operational excellence to boost value; brand messaging and menu innovation; modernizing its business model with technology, including artificial intelligence; expanding its global reach with proven company-owned and partner-owned models and by entering new markets; and recruiting and cultivating talent focused on speed and agility, Boatwright said.
To boost operations, the company will accelerate the deployment of its high-efficiency equipment package that can improve prep time by two to three hours, helping to eliminate prep time during peak periods. The package boosts consistent throughput and reduces the learning curve for new employees, Boatwright said. So far, 350 restaurants have the new equipment, with the equipment expected to be installed at 2,000 units by year’s end.
“In addition to higher taste of food and overall guest satisfaction scores, we are beginning to see better throughput and meaningful improvement in comp sales,” Boatwright said.
More LTOs, menu innovation planned
In terms of marketing, the brand will focus on value and high-quality protein. Chipotle recently began emphasizing the protein content of its menu — a single taco offers 15 grams of protein for $3.50, while a double protein bowl has over 80 grams of protein. It also added a high-protein snack cup for $3.80.
“Early results are strong, with incidence of extra protein increasing 35% and our recent double protein promotion achieving a record digital sales day,” Boatwright said. More orders of double protein entrees could increase average check and offset traffic declines, though the chain recently launched a free double protein promo code for rewards members.
Chipotle will also increase its protein LTO rollouts to four times a year to help drive demand, especially since its core guests are more likely to return to restaurants that have new menu items, Boatwright said. Chicken al Pastor will return next week, which is the chain’s “most celebrated limited time offer in history,” Boatwright said.
The chain will add more sauces, sides and beverages. New menu items are working through Chipotle’s stage-gate process.
The brand is building awareness of its Build Your Own Chipotle option for families or groups of four to six and is testing an expansion of its catering, he said. Those two group occasions make up 3% of combined sales, but could be double-digit percentage of overall sales over the long term, Boatwright said. The company began testing catering orders with one of the large third-party delivery platforms and is already seeing these orders building.
The company is planning to relaunch its rewards program in the spring “to widen the funnel and leverage our data and AI to power more personalized and impactful user experiences,” Boatwright said. That will include working to boost rewards transactions by in-restaurant guests and remove friction around checkout. Rewards transactions make up about 20% of in-restaurant orders, versus 90% through the app, he said.
“Currently, about 30% of sales are realized through our rewards platform and the momentum gives us confidence that there remains significant runway for growth by bringing more guests into the funnel, deepening engagement and driving sales throughout the year,” Boatwright said.
An eye on global growth
The company will also focus on unit growth as part of this plan. It opened 334 company-owned restaurants last year and surpassed 4,000 units in December, and management remains optimistic that it will have 7,000 units in North America over time. It opened 21 units in Canada, a 38% year-over-year increase in openings for the country. Chipotle continues to expand in Europe and the Middle East and plans to open new partner-operated units in Singapore, Mexico and South Korea this year.
Chipotle is working to improve the employee experience and continues to promote from within. Last year, it promoted 23,000 employees, with internal promotions accounting for 100% of its regional vice president positions, over 83% of its field leader posts and roughly 90% of its restaurant management, Boatwright said.
“We will always keep opening doors for our people, creating more pathways for career growth and advancement at every level in our company,” Boatwright added. “ [As] we move forward, we are building a culture of speed and agility and adding exceptional talent to drive our strategy.”
