How Hot Is Chipotle's Business Now?

There’s no doubt about it: The American consumer has opted to forgive and forget with fast-casual chain Chipotle Mexican Grill (NYSE:CMG). The company recently reported on its fourth quarter, and not only did same-store sales rise 6.1%, but the growth in that metric accelerated through the year.

In this segment from MarketFoolery, host Chris Hill and Motley Fool Director of Small-Cap Research Bill Mann talk about what management did to put its food-borne illness scandals in the rearview mirror, its online ordering strategy, and more.

A full transcript follows the video.

This video was recorded on Aug. 9, 2017.

Chris Hill: Unlike Twitter’s fourth quarter, Chipotle’s fourth quarter, boom!

Bill Mann: I feel like we need to have LL Cool J playing in the background for this particular segment.

Hill: “Don’t call it a comeback”?

Mann: “Don’t call it a comeback.”

Hill: Shares up 14%. It was a strong quarter. Traffic up. Same-store sales up just over 6%. In this environment, coming off of —

Mann: It’s unreal.

Hill: — coming off of the year that we just had for restaurants, 6% is tremendous.

Mann: Chipotle’s stock was up 14% the last I checked, and it was not as if Chipotle’s stock has not already had a torrid 2018. They are not bouncing off of the bottom. I went back and looked because I wanted to see what kind of momentum there was for Chipotle. You just said, for the fourth quarter, it was 6.1% same-store sales growth. For the third quarter, it was 4.4%. For the second quarter, it was 3.3%. The first quarter was 2.2%. They’ve had a lot of momentum. Brian Niccol caused a huge amount of optimism behind the brand, behind the company. He’s gone in and fixed a lot of things. I think it’s very safe to say that Chipotle has gotten past the really horrible queso issue. I can’t remember, what else happened with them? I don’t quite…

Hill: They had a couple of health issues.

Mann: They had some health issues, that’s right. Which were real, and they really did a lot of damage to the brand.

Hill: Absolutely.

Mann: To me, that’s what’s most important.

Hill: Another thing you look at that’s rising within Chipotle is online orders. They highlighted that in the report. That’s something that we’ve been watching with this company. I think, the fact that they laid out this blueprint for, “We want to have dedicated space in the kitchen just for the online orders,” that’s a smart move. Also, from an execution standpoint, that can be tough to pull off. Right now, they look like they’re pulling it off.

Mann: Yeah, and you remember — not that anecdotes should take the place of data — how hard it was to actually go in when we’d ordered online from Chipotle several years ago when they first rolled out their app.

The other thing that’s becoming meaningful for them is what they call the Chipotlane, which is the drive-thrus at Chipotle. They keep people moving through different channels at the same stores. The numbers are astounding for what they’ve done over the last year.

Hill: From a business standpoint, it’s great! Just from a word standpoint, Chipotlane, that’s in the same camp as Zestimate for Zillow. OK, that’s cute. That’s cute that your drive-thru window is called the Chipotlane. [groans]

Mann: [laughs] To be fair, I’m not sure if they’re calling it that or that’s what’s been socialized. Let’s not blame them too much. The Zestimate, that’s rough.

Hill: Yeah. We have to put that all on them. And, hey, as you indicated, in all seriousness, just imagine if they get queso right. [laughs] Just imagine. Anytime we look at restaurants, anytime we look at retail, one of the things we like to look at is the average ticket price. Not just how many people are coming through the front door, but how much are they paying when they’re getting ready to walk out? And if they can get queso right, then all of a sudden, the ticket price goes up.

Mann: Right. I’ve been on a little bit of a health kick, trying to get myself back in order, so queso has not been on my list of things to go and eat very much of, but it was pretty easy to not eat Chipotle’s queso over 2017 going into this last year. If they fix that, and they’ve still been testing chorizo, which is delicious… they’ve got a number of levers that they can pull to bring some additional excitement into the restaurant.

Hill: Because I want you to succeed in your health kick, I’m just going to tell you, stay away from District Taco. Those people know how to do queso.

Mann: Those people, their queso and their guacamole are outstanding. Someday, I will be able to have it again.

Leave a Reply

Your email address will not be published. Required fields are marked *