Categories Analysis, Consumer

Chipotle Mexican Grill’s investments in digital platform, loyalty program pay off

Restaurant chain to pay a record $25 billion to resolve criminal charges relating to safety violations

Chipotle Mexican Grill (NYSE: CMG), said the investments it made in the digital platforms and loyalty programs are paying off during the COVID-19 season. CMG had invested early on in its digital platform and built relations with delivery partners like UberEats to expand into the suburbs. In Q1, in-store ordering for April has declined by 75%, while delivery and order-ahead shot up by 150%, and 120% respectively. Digital sales solely contributed to 70% of net sales of CMG in Q1 2020.

The loyalty program enrolment, meanwhile, shot up to 12 million from 8 million, recording a growth of 50%. CEO Brian Niccol said in the earnings call with analysts that the Chipotle Rewards Program, “is going to be a very valuable asset going forward as we work through the recovery”.

100 restaurants shut

The company has shuttered 100 restaurants located in shopping centers and malls. The rest remain operational with takeaway, digital order, and delivery services.

CMG reported that same-store sales decreased by 16%, in the month of March when the pandemic started taking a full swing. The sales mix has also seen a shift. CMG had been dependent on lunchtime orders, which have gone down drastically, and is receiving higher orders for dinner. Yet the revenues from digital sales keep revenues up by 8% at $1.4 billion.

Third-party inspection to ensure safety

Chipotle said it has recovered from the safety incidents lined up from 2015-2018, paying a record fine of $25 million to resolve criminal charges. Acknowledging that the consumer sentiment would trend towards safety concerns, it has installed supplied sanitizer for employees and mandated guidelines for safety. Separately, the chain has engaged a third-party consultant for inspection of restaurants and employed and independent Food Safety Advisory Council.

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The management said it shifted its marketing activities away from television to social and digital platforms and are offering delivery incentives to its consumers. The customer survey has favored some new additions to the menu. Menu innovation ideas for beverage, quesadilla, and Blanco launch are in pipeline.

Long-term view

Like some peers, CMG pulled back its financial guidance for 2020. However, a higher number of repeat customers give an optimistic outlook.

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The company ended Q1 2020, with $909 million in cash & cash equivalents, and zero debt. To keep its liquidity position intact and retain cash, it has suspended the share buyback program. The company has mentioned that they are not considering a dividend payment yet. However, it continues to keep the CAPEX spend at $30 million to $35 million a month, with a credit facility of $250 million to $500 million in banks from banks, if at all required.

Company execs also revealed plans to open drive-thru Chipotlane, but they expect delays therein.

For more updates, check out the earnings transcript here.

(Written by Manjula S)

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