Chipotle Management Talks Marketing, "Chipotlanes," and More
Under Chipotle Mexican Grill's (NYSE: CMG) new CEO, the fast-casual restaurant company is thriving. The company's momentum was particularly evident in its recently reported fourth quarter, which featured 10.4% year-over-year revenue growth and a 6.1% jump in comparable restaurant sales. Notably, growth in both of these two metrics was an acceleration compared to growth rates seen in Q3. This momentum validates the company's efforts to revitalize its business.
"The growth acceleration this quarter gives us confidence that our strategy is working," said Chipotle CEO Brian Niccol in the company's fourth-quarter earnings release. "When we connect with guests through great operations, relevant marketing focused on Chipotle's great taste and real ingredients, and provide more convenient access, they respond enthusiastically."
Image source: Chipotle Mexican Grill.
But there's more to the quarter than the key figures in Chipotle's fourth-quarter earnings release. To get a better look at the company's turnaround, consider these three key quotes from the company's fourth-quarter earnings call.
Improved marketing
One of Chipotle's best investments in 2018 was its marketing. An improved marketing strategy helped improve the fast-casual restaurant's results without weighing on its bottom line.
"Chris Brandt and his team have done a great job of making Chipotle more visible and culturally relevant social and traditional media channels," said Niccol during the call. "For example, our 2018 overall digital impressions increased nearly 20% year-over-year while social impressions increased nearly 40% year-over-year. This was all accomplished without increasing our overall marketing budget."
Indeed, both marketing and promotional costs were lower on a year-over-year basis in Chipotle's fourth quarter of 2018, helping contribute to the company's expanded operating margin during the period.
The company's efficiency in marketing ultimately "helped drive a noticeable lift in sales during the second half of the year," Niccol said.
Unsurprisingly, the company wants to continue evolving its marketing strategy in 2019.
Investing $90 million in growth initiatives
Building on its strong momentum in 2018, Chipotle is making strategic investments in 2019 in its biggest growth areas.
Chipotle CFO Jack Hartung detailed the company's investment plans for 2019 during the earnings call:
In 2019, we expect capex will be around $300 million with around 40% to 45% invested in new restaurants, 30% to be invested in growth related initiatives, including digitized second make lines and digital pickup shelves, and the remaining invested in normal upkeep of our restaurants and strategic corporate initiatives.
Importantly, this means around $90 million will be allocated toward growth initiatives like expanding efforts that are helping digital sales. This is important because Chipotle's digital sales are surging, increasing 66% year over year in Q4 -- an acceleration from 48% growth in Q3.
"Chipotlanes" are working
As part of Chipotle's efforts to boost mobile orders, it has been experimenting with drive-thru lanes it's calling "Chipotlanes." While Chipotlanes are still in a testing phase, they're showing promising results, explained Niccol during the call.
Our test of the initial ten restaurants with the mobile order pickup lane that we call Chipotlane is showing promising results with a higher mix of digital sales and total restaurant sales. We'll continue to explore and learn about this opportunity by opening a few dozen more Chipotlanes in 2019 with a mix of freestanding and end cap buildings.
Later in the call, Niccol explained that its efforts around Chipotlanes will mostly involve new stores. In other words, investors shouldn't expect the company to retrofit many existing stores with drive-thrus.
This year, Chipotle plans to open between 140 and 155 new restaurant locations. Throughout the year, investors should look to see how many of these new locations get Chipotlanes.
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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
