Chipotle executives have been referencing the brand’s “two businesses” of dine-in and digital for some time, and that model seems to be solidified now in a pandemic environment.
During its third quarter, reported Oct. 21, the company’s digital sales generated nearly 43% of the mix, despite dine-in customers returning in droves. While that’s a slightly lower percentage than the previous quarters throughout the past year or so, the actual amount of digital sales grew 8.6% year-over-year to generate $840.4 million.
This sustained double business no doubt adds operational complexity, particularly in a historically tight labor environment. A recent report from MarketWatch confirms these challenges, with several Chipotle employees stating the chain’s increased demand in digital orders has been a struggle. Walkouts have also been reported.
Scott Boatwright, Chipotle’s chief restaurant officer, calls such pressures a “great problem to solve for.”
“Digital is the stickiest channel and we’re super happy with that. We know when we get consumers into those digital channels, the likelihood of creating a relationship that is enduring for us is better,” he said.
Consider it a sort of Catch-22, then. Chipotle is tasked with bringing in enough labor for both businesses to support its record-breaking sales. Boatwright notes the chain’s “employee value proposition” is industry leading. Indeed, Chipotle was one of the first major chains to commit to a $15-an-hour average wage and has also created a path toward general manager positions. But it’s the work the chain did before the pandemic that ignites his confidence in its ability to navigate such pressures.
“It’s a massive challenge, but we already had our core competencies and training in place [before the pandemic],” Boatwright said.
The chain added a second makeline just for digital orders around 2016. The line doesn’t require as much staffing because it removes the customer-facing pieces. Once that new operational process went into place, the company experienced a material uptick in digital sales. In 2018, they went from 5% to 10%, for example, and the next year, they went from 10% to 20%.
When the pandemic hit and dining rooms were shut down all over the world, Chipotle’s digital sales jumped to about 80%.
“When COVID accelerated digital sales, we were able to refine our capabilities early on. The brands that are just now figuring out how to be competitive on the digital side–especially in this labor market–I can’t imagine how tough that is,” Boatwright said. “For us, the early investments we made in digital has paid huge dividends for us. It was fortuitous.”
That’s not to say Chipotle is about to rest on its laurels. The chain recently acquired self-driving delivery company Nuro, for example. And while it’s too early to say how that test is going, automated delivery could no doubt ease some labor pressures for the chain’s growing digital orders.
“We think there is great demand for delivery, not only today but that will continue to grow. There will always be a subset of people who congregate and gather around a meal occasion. That doesn’t go away. But more people are looking for convenience and additional access points and the demand for delivery will continue to grow,” he said.
The company also opened a digital-only restaurant last year in Highland Falls, New York, that offers pickup and delivery only. Boatwright said the potential for more of these ghost-kitchen-type (and less labor intensive) models is significant, particularly to supplement busy Chipotlane models.
“We are looking at this and asking how we can use this in our portfolio. If I have a high-volume Chipotlane restaurant and I want to take some pressure off that restaurant, can I use a digital-only location to offload that pressure? We’re thinking of strategically placing those in geographies to solve for demographic or local area needs,” Boatwright said.
That said, we’re likely to see more digital-only locations as the company presses the gas on its Chipotlane model. Chipotlanes yield 10%-to-15% higher sales and higher margins because they capture more digital business, and 75% of its new restaurants will be in the model.
Though there are no further technology investments at the company at this time, Boatwright said the conversation is “constantly happening.”
“We are always looking at unique ways to bring efficiencies and keep opportunities on our radar. The world is shifting and we have to continue to be innovative and restless,” he said. “We want to remain relevant just like we’ve always done with digital drive-thrus, and digital makelines. Let’s just put it out there and see what happens.”