Above: Scene from recent Chipotle ad
Just as Chipotle Mexican Grill was finally closing the legal door on its own health crisis dating to 2015, along came COVID-19.
If there’s a silver lining for Chipotle within the current pandemic, it’s a huge increase in loyalty members and digital orders in its first fiscal quarter—plus an ongoing payoff from the quick-serve chain’s investments in outdoor Chipotlanes for order pickup.
The company has reprioritized its marketing efforts by offering free delivery from March 15 to at least early May. It will partly offset the attendant costs by shifting media spending from live sports to online and streaming platforms.
In announcing financial results on Tuesday for the period ended March 31, Chipotle said it reached a Deferred Prosecution Agreement with the Department of Justice in which it will pay $25 million for food safety incidents that sickened more than 1,100 people from 2015 to July of 2018.
In one case that July, approximately 647 people who dined at a Chipotle restaurant in Ohio reported illness related to a pathogen that local health officials traced to inadequate time and temperature controls for lettuce and beans.
“These payments will unfortunately hurt our liquidity a bit, but we're ready to put this old matter behind us,” CFO Jack Hartung told financial analysts on a conference call.
Through the end of February, comparable-restaurant sales at Chipotle had increased 14.4%. In March, the impact of COVID-19 resulted in a decline of 16%. Comparable-restaurant sales bottomed at -35.0% during the week ended March 29, before beginning to improve in April.
Digital sales grew 81% year over year to $371.8 million—the company's highest-ever quarterly level—representing 26% of sales. After announcing a national delivery partnership with Uber Eats mid-month, March digital sales grew 103%.
“While delivery continues to be the fastest-growing part of our digital platform, we are also pleased with our order-ahead business, where average daily sales have doubled from the level seen prior to COVID,” chairman and CEO Brian Niccol told analysts.
“This is part of the reason that we continue to shift our development pipeline more aggressively towards Chipotlanes, as it helps drive our high-margin, digital, order-ahead transaction.”
The company’s rewards program grew from 8 million to 11.5 million members. “We are pleased to report that 65% of newly enrolled rewards members are new to the Chipotle brand, up from 51% pre-COVID,” Niccol said.
Asked by analyst Andrew Charles of Cowen whether Chipotle would try to maintain its marketing and promotions expenditures given lower anticipated sales for 2020, Niccol said the top priority is maximizing returns for the current environment. “I think the team has done a phenomenal job of it, pivoting away from traditional television, frankly, and moving more towards delivery incentives around delivery, and then also using platforms [like] social, digital.”
Chipotle opened 19 new restaurants in the quarter—including one relocation—and closed two. Some 100 restaurants are temporarily closed as a result of COVID-19, mainly inside malls and shopping centers, as well as 17 locations in Europe.
Chipotle had over 2,600 restaurants as of March 31 in the United States, Canada, the United Kingdom, France and Germany. It’s the only restaurant company of its size that owns and operates all its locations.