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Chipotle Shares Skyrocket Following Digital Transformation

Chipotle Shares Skyrocket Following Digital Transformation

Chipotle ’s fourth quarter results prove that digital mobile is reinventing the highly competitive food industry.

For decades the fast food industry has operated on convenience and good customer service, but with today’s generation, the world of digital and mobile technologies is reinventing what these values mean.

Like many fast food chains, the American franchise Chipotle has been working to digitize its restaurant to increase convenience among their consumer base and reach new customers.  According to Brian R. Niccol, Chief Executive Officer at Chipotle, their recent fourth-quarter report shows these digital advances in service are paying off.

“I’m very pleased to report strong fourth quarter results with 6.1% comparable restaurant sales growth that included 2% transaction growth. For the full year, Chipotle’s average unit volumes exceeded $2 million with digital sales surpassing half a billion dollars,” said Niccol.

Convenience through digital access will continue to be a priority driver in growth.

“We continue to hear the No. 1 reason consumers eat elsewhere is because they don’t have convenient access to Chipotle,” he continued.  “In 2018, we opened 137 new restaurants with industry-leading returns, and we’ll continue to be one of the leaders in developing new restaurants. For our existing restaurants, we completed the big fix and stayed focused on expanding the reach of our digital system to provide our guests easier access and greater convenience,” Mr. Niccol said.

The company’s fourth-quarter report surpassed market expectations, with its revenue increasing 10 percent from its third-quarter earnings. Their digital profits saw a 66 percent year-over-year increase, a significant jump from the 48 percent it made in digital profits in the previous quarter. According to CNBC, this is thanks to the company’s new Chief Executive Officer Niccol who made digital and marketing investments a top priority for the restaurant, leading the Mexican grill to reach its best year in the stock market since 2013.

“Digital sales totaled $158.6 million during the fourth quarter and represented 12.9% of sales,” Mr. Niccol said. “For the full year, digital sales exceeded $0.5 billion and accounted for 10.9% of sales. App downloads increased 72% year-over-year in 2018, and we continue to see strong interest from new, infrequent, as well as frequent guests at Chipotle.”

The restaurant’s mobile app was released in 2009 for iPhones, and in 2013 was available as an Android app allowing customers to purchase meals through e-commerce and use a GPS service to identify nearby Chipotle restaurants. The company further amped up its digital services in 2017 with “Smarter Pickup Times,” enabling consumers to “skip the line, by ordering online.” This was an additional improvement to their online service, allowing customers to schedule orders and select a specific pick up time in advance, the app would then provide the customer with an estimated wait time according to their order volume.

Currently, over 1000 of their restaurants include digital pickup shelves, and a second set of employees to assemble food items made strictly for digital food orders known as a “second make lines.”  The digital pick up shelves reduce lineups and congested waiting areas, and the “second make lines” reduces the backlog in the kitchen for in-store orders.

Another digital strategy the company applies to its website and mobile app, is a choice of three on-demand delivery services, with Door Dash and Post Mates dedicated to metropolitan areas in the US, and Tapingo for college campuses.

“Similar to last quarter, we saw a particularly strong traction in delivery,” he added. “Although off a relatively low base, delivery sales increased roughly 13-fold compared to the fourth quarter of 2017.” Niccol states.

Similarly, another Mexican fast-food chain has jumped on the bandwagon of heightening convenience through digital services, Taco Bell recently announced its partnership with “grub hub” allowing customers in the US to enjoy their food at home by ordering for delivery through the Grub Hub app.

It now seems like almost every fast food restaurant has an app service for consumers to download at their leisure.  As Chipotle ’s results show, the world of digital mobile is transforming the highly competitive food industry overnight by reinventing the definition of customer service and shareholder success.