Dive Brief:

• Chipotle's digital sales grew 202.5% to $776.4 million and accounted for 48.8% of total sales during Q3 2020, according to an earnings release. About half of these sales were from delivery with the other half coming from order ahead, which includes in-store pickup and Chipotlanes. 
• The company expanded its delivery capabilities with additional partnerships with Uber Eats and Grubhub and expanded its digital capabilities into Canada. An average Chipotle restaurant delivers a digital average unit volume of over $1 million, compared to a few hundred thousand dollars per restaurant a few years ago, CEO Brian Niccol said on Wednesday during a call with investors. 
• Given its current momentum, which doesn't seem to be slowing down — October's digital mix remains in the high-40s — digital sales could exceed $2.5 billion this year, which is more than double what it was in 2019, Niccol said. Adding up Q1 and Q2 sales, which totaled $372 million and $829.3 million, respectively, with Q3 digital sales brings category sales for the first nine months of the year to just shy of $2 billion. 

Dive Insight:

Two years of digital innovations is paying off at Chipotle, especially with customers still reticent about returning to dine-in during the pandemic. While Chipotle's comp sales were down in Q2, they increased 8.3% during Q3 2020, and its digital mix, which tripled during the quarter, appears to be part of the company's growing sales momentum. The company added group ordering in June and continues to shift its real estate strategy toward more Chipotles with its mobile order ahead drive-thru lanes, dubbed Chipotlanes. This channel benefits from a second make line, which was added in 2019 to focus on digital orders.

During the quarter, Chipotle opened 44 new restaurants, of which 26 were Chipotlanes, according to the release. The company now has 128 Chipotlanes, including five conversions, out of its over 2,700 restaurants, CFO Jack Hartung said during the investor call. If the company adds another 25 to 30 Chipotlanes during Q4, it would be on target to reach its original goal of building 150 to 165 Chipotlanes this year. 

The company will also consider relocating some Chipotles, especially those that are now 20 years old, to locations that allow for drive-thru lanes, Niccol said.

"We're starting to see much more traction with landlords being willing to work with us on the conversion, and we're also seeing nice results from the conversions that we've tested to date," Niccol said.

Comps at Chipotlanes stores are 10% higher than a traditional store, which equates to about $200,000 in sales volume, more than making up the additional $75,000 to $100,000 needed to develop these locations, Hartung said. The most recent openings of Chipotlanes during the pandemic were actually returning comps 25% higher than non-Chipotlane stores, Hartung said. 

"Opening more Chipotlanes will not only enhance customer access and convenience, but it also increases new store restaurant sales, margins and returns," Hartung said.

Having more Chipotlanes also pull people away from delivery, which negatively impacted margins due to higher costs associated with the channel. Hartung said 15% of in-store customers shifted toward delivery. 

"So between now and next year ... if delivery shifts into in-store and shifts into order-ahead and pick-up, then I would say our margins, for sure, are headed on the way up," Hartung said. "If delivery stays the same or increases, we'll have some challenges."

The company is experimenting with increasing menu prices to offset delivery costs, he said. 

Chipotle's loyalty program, which has 17 million members, is also starting to provide insights into customer behaviors. These insights will help the restaurant find ways to reengage with members if their visits decline, thereby increasing the stickiness of digital, Niccol said. Members also become more familiar with the company's app and the ability to order-ahead and grab and go has also resulted in more frequency, he said. 

"There are those occasions that are dedicated to deliveries, but there's also these occasions for everybody in these cohorts where the order-ahead proposition makes a lot of sense," Niccol said. "And we're very bullish on being able to use the data and the insights to drive the behaviors around these various occasions that maybe Chipotle before wasn't top of mind but now they are."