Dive Brief:

• Chipotle’s digital business surpassed $3 billion in revenue during 2022 and represented 39% of food and beverage sales, CEO Brian Niccol said Tuesday during the company’s Q4 2022 earnings call.
• Despite growth in absolute terms, digital sales as a percentage of total revenue leveled off at around 37% in Q4, matching Q3 performance. In-store sales increased by nearly 18% in Q4, according to the company’s earnings release.  
• The chain will continue to improve its digital experience for its guests and began testing advanced location-based technology to improve its app, Niccol said. 

Dive Insight:

Chipotle’s strategy to build more Chipotlanes, each equipped with a mobile pickup window, helped drive the company’s digital business. Last year, it opened 236 new restaurants, of which 202 had a Chipotlane. Last quarter, it opened its 500th Chipotlane and has since surpassed 570 Chipotlanes. The company plans to open 255 to 285 restaurants in 2023, with over 80% including a Chipotlane, Niccol said. CFO Jack Hartung said its Chipotlanes continue to outperform stores without one due to the added convenience of the digital drive-thru. 

Chipotle’s latest mobile app upgrade provides customers with updates on order status, lets guests know if they went to the wrong pickup location and reminds them to scan the Chipotle Rewards QR codes at checkout, among other features, Niccol said. Results were positive during testing, as these features improved delivery speed, reduced the number of customers going to incorrect locations and created a better experience for rewards guests, he said. The company rolled out these upgrades nationwide in January, Niccol said. 

Chipotle has enhanced its loyalty program with more targeted offers and gamified badges to help drive transactions, Niccol said. Sixty percent of its rewards promotions were personalized in 2022, and Niccol said that proportion is likely to increase going forward. The company also created a Freepotle promotion to boost engagement and add members. That promotion offers rewards member 10 personalized free rewards during the year. In 2022, rewards memberships grew 20%, reaching 31.6 million. 

“When people are engaged in our rewards program, we get more purchase frequency out of them,” Niccol said. “The most engaged people come through our digital business when it comes to our rewards program. The combination of high engagement with rewards specifically around the amount of personalization … will result in more frequency … down the road.” 

To improve digital throughput, the company has partnered with Hyphen, which was one of the first companies to receive funding from Chipotle’s Cultivate Next Fund. The chain is working with the automated food service platform to help assemble meals to improve accuracy and speed of service, Niccol said. Chipotle and Hyphen are working to create its first automated digital makeline prototype, which will be tested at its Cultivate Center during the first half of the year, he said.  

Chipotle has seen a drop-off in the percentage of digital orders, which fell from 41.9% of sales in Q1 to 37% in Q4, as more diners return to the restaurant. Hartung said some of the decline is due to delivery transactions falling 15% during Q4, which he attributed to diners getting out more and not wanting to pay the higher prices associated with delivery orders. The chain also saw transactions overall decline by 4% and mix was down 3%, Hartung said.

The company expects digital sales to settle in the high 30% range as consumer behavior normalizes. That prediction is based on Chipotle’s experience in the Southeast and Southwest, where business was less impacted by COVID-19 restrictions at the start of the pandemic and where digital transactions leveled out in the mid-30% range, Hartung said.