To begin with, Chipotle has remarkable store economics. Its average restaurant sales rose 13% year-over-year (y-o-y) to $2.6 million in Q1, despite adding 51 new restaurants over the same period - illustrating that the additions are not cannibalizing existing locations. It continues to post healthy sales and profitability growth in the first quarter, which is a big step in the right direction for the popular Tex-Mex chain. In Q1, Chipotle's revenue grew 16% y-o-y to $2.0 billion, on the back of 9% growth in comparable restaurant sales (outlets in operation for 13 calendar months at a minimum). In-restaurant sales grew by 33% largely thanks to the return of onsite diners. In addition, the company's earnings per share rose 25% y-o-y to $5.64 in Q1. Secondly, the company raised its menu prices by 4% in Q1 to push the inflationary cost onto customers, which was on top of another price hike realized in December 2021. This ability to raise menu prices somewhat mitigated the rise in input costs of beef, paper, and avocado during the first quarter. As a result, Chipotle's restaurant-level operating margin shrank only 160 basis points to 20.7% in Q1, which could have been worse.
Digital sales continue to be strong at almost 42% of the core food and beverage business in Q1, despite the return of in-person dining. Chipotle's highest-margin sales are digital orders, so momentum on this front serves the business well for continued profit growth in the long run. Chipotle's reward program (launched in Q1 2019) is gaining steam with an outstanding 28 million members (as of Q1 2022), wherein each purchase wins points that can be redeemed for food. In comparison, Starbucks, which introduced its world-class rewards program more than a decade in advance of Chipotle, has 26.4 million members in the U.S in FQ2 2022 ending April.
Below are key drivers of Chipotle's value that present opportunities for upside or downside to the current Trefis price estimate for Chipotle:
Number of Restaurants : Currently in the coronavirus pandemic the company's new restaurant addition has taken a hit and is at a slow pace till things get clearer.
Average Revenue Per Restaurant : We expect the company's revenues to grow at a steady pace over our forecast period, with average restaurant sales growing at around 3% over our forecast period.
For additional details, select a driver above or select a division from the interactive Trefis split for Chipotle at the top of the page.
Chipotle Mexican Grill is a chain of restaurants operating in the casual dining segment, which specializes in serving Mexican cuisine. As of Dec 31, 2021, the company operated 2,918 restaurants, almost all of which are located within the U.S. All the restaurants are company-operated with no franchises.
Chipotle's menu comprises a Mexican fare with a few things that can be mixed and matched with various sauces and ingredients such as salsa, guacamole, cheese, and lettuce, to make one's dishes. The menu primarily consists of Tacos, Burritos, Salads, and Burrito Bowls (Burrito without the Tortilla).
Chipotle operates on the "Food with Integrity" principle, wherein it offers naturally raised pork, chicken, and beef. Naturally raised implies that the animals are raised in open pastures and are fed on a purely vegetarian diet without any added hormones or antibiotics.
Chipotle's objective is to provide a fine-dining experience in a quick-service setup and to provide quality food and ambiance without having the customer wait too long. Some Chipotle restaurants can serve up to 300 customers an hour.
Chipotle competes with restaurants in the casual dining segment such as Applebee's, Qdoba, Taco Bell, and Chili's, among others. It also competes with fast-food restaurants such as McDonald's, Burger King, Subway, and KFC.
Chipotle's business is wholly dependent on company-operated restaurants, which explains the significance of this division to its stock.
Chipotle enjoys a higher average spend per customer than most of its competitors, given its high quality of food. For example, in McDonald's, the average spend per customer is around $4, whereas the corresponding figure in Chipotle is about $11-12. The company has successfully marketed itself as a restaurant serving natural, hygienic, and organic food in an upscale ambiance, for which the consumers are often ready to pay a slight premium.
Another reason why the company enjoys a higher average spend per customer is that it has restaurants only in developed countries, where the average spend is usually higher than in developing countries. Most of the fast-food restaurant chains have a mix of restaurants in developed and developing countries, which has a lowering effect on the overall spend per customer.
Consumers have become more health-conscious, and there is an increase in demand for natural and healthier food. Using its 'Food with Integrity' campaign, Chipotle has aggressively marketed itself as a restaurant using only naturally raised meat. Taking cues from Chipotle, an increasing number of restaurant chains are adding all-natural products to their menu. Wendy's started offering upscaled items on its menu last year. Moreover, its restaurant remodeling initiative is inspired by Chipotle.