Operations
Chipotle CEO open to price increases
Chipotle's Q4 earnings mostly beat analysts' expectations, despite higher food and labor costs. Its December price increase helped to offset their impact, however, which begs the question: Will menu prices get higher?
February 9, 2022 by Cherryh Cansler — Editor, FastCasual.com
Chipotle CEO Brian Niccol called 2021 an "outstanding year" while chatting with investors Tuesday about the company's Q4 earnings. Chipotle posted an earnings per share of $5.58 adjusted vs.$5.25 predicted and reached revenues of $1.96 billion, which was on target with analysts' expectations. Although the chain is facing higher costs for labor and ingredients,it's December price increase helped to offset their impact.
"We believe our powerful economic model will deliver best-in-class returns while achieving AUVs well beyond $3 million and significantly expanding the number of Chipotle restaurants in North America, said Niccol, who pointed out that the five key strategies he had previously outlined were still working. They are:
- Running successful restaurants by adhering to an accountable culture.
- Sustaining world-class people leadership by developing and retaining diverse talent at every level.
- Making the brand visible, relevant and love to improve overall guest engagement.
- Amplifying technology and innovation to drive digital growth and productivity.
- Expanding access and convenience by accelerating restaurant openings.
Raising prices?
Chipotle is not ruling out another round of price hikes, according to Niccol, who said that the chain constantly evaluates its value proposition.
"And the good news is we have so much data now with our loyalty database that we're able to understand (if there) are any behavioral impacts from what we're seeing," he said. "And we see very little resistance there."
Compared to the marketplace, Niccol said the chain still scores high on value when it comes to customization, access and portion.
"We're kind of in our own space, and we're very fortunate to be in that space," he said. "And there's a lot of headroom from what we can tell. And I really hope we never have to use all of it, but we'll be judicious. And when we need to, we will."
Driving toward digital
Digital service at Chipotle has continued to climb. During the fourth quarter, for example, digital sales grew 4% year-over-year to $811 million and represented 42% of sales.
"We're pleased to see our digital sales dollars continue to grow despite lapping tough comparisons, and our overall digital mix remained steady in what seems like a new normal," Niccol said.
The chain's full-year digital sales of $3.4 billion is nearly 3.5 times what it did pre-COVID in 2019.
"Digital has proven to be sticky as it's a frictionless and convenient experience that has been aided by continuous investments, and you will likely see us increasing technology enablement for our restaurants and support centers to amplify innovation, enhance the customer experience and optimize efficiencies to improve operational execution," Niccol said.
4Q highlights
- Total revenue increased 22% to $2 billion.
- Comparable restaurant sales increased 15.2%.
- Digital sales grew 3.8% and accounted for 41.6% of sales.
- Operating margin was 8.1%, an increase from 7.3%.
- Restaurant level operating margin was 20.2%, an increase of 70 basis points.
- Opened 78 restaurants.
Full year 2021 highlights, year over year:
- Total revenue increased 26.1% to $7.5 billion
- Comparable restaurant sales increased 19.3%
- Digital sales grew 24.7% and accounted for 45.6% of sales
- Operating margin was 10.7%, an increase from 4.8%
- Restaurant level operating margin was 22.6%, an increase of 520 basis points
- Adjusted diluted earnings per share was $25.42, a 136.9% increase from $10.73.1
- Opened 215 new restaurants
Development Update
Niccol said based on the success of small-town locations that are delivering unit economics at or better than traditional Chipotle locations, he believes that North America can support at least 7,000 units, which is 1,000 more than his previous goal.
"Given the healthy and improving cash on cash returns, we are building a real estate pipeline that will allow us to accelerate unit growth to be in the range of 8% to 10% per year, with greater than 80% of new restaurants having a Chipotlane," he said.
About Cherryh Cansler
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