Chipotle surpassed 3,000 locations during Q1 2022, with its store count increasing by a net of 48 units during the period to 3,014 total,. Of the 51 new units opened during the quarter, 42 of these locations include a Chipotlane, a model the company has aggressively expanded for several years due to the higher revenue, margins and returns it drives. 

The chain said it plans to open between 235 and 250 new restaurants in 2022, including five to 10 relocations to add a Chipotlane. This expansion clip comes despite challenges from construction delays, the labor shortage and inflationary pressures.

Chipotle is about halfway to its goal of reaching 7,000 restaurants in North America and is building a real estate pipeline to grow units by 8% to 10% annually, Chipotle CEO Brian Niccol said during the company’s earnings call on Tuesday. At least 80% of these new restaurants will feature a Chipotlane, Niccol said.

Inflation, price increases aren't slowing Chipotle

Along with other companies like McDonald’s, Burger King and Taco Bell, Chipotle has increased prices since last year to offset rising labor and food costs. At the end of Q1 2022, Chipotle bumped prices up by 4% to offset spiking commodity costs from items like avocados, tortillas and dairy, Chipotle CFO Jack Hartung said during the Tuesday call.

Pricing changes haven’t impacted customer retention, however, and same-store sales remained positive, increasing 9% during the quarter. The chain benefited from strong response to its mid-March pollo asado launch, with foot traffic increasing 19.5% during the week of March 14 compared to the year-ago week, according to data from Placer.ai. 

“While the company has pushed price aggressively since the beginning of the pandemic, its perceived relative value proposition compared to Casual Dining is still solid,” Matthew Goodman, M Science analyst, wrote in an email to Restaurant Dive. “Moreover, the company has shown a penchant for successful menu innovation, including the generous use of limited-time offers, that helps keep its simple menu fresh for customers.”

Chipotle's development team faces construction labor shortages, permitting delays and raw material and equipment shortages, Hartung said. 

“The market is under stress, interest rates are going up,” Hartung said. “But no matter what happens out there, we have a strong balance sheet. We know we have strong economics and we’re in this for the long haul.”

The company, along with other well-funded chains, benefited from pandemic-related pressure on small, independent restaurants. This dynamic opened up more opportunities for large chains to grow in a profitable way, Goodman said. 

“The shift to work-from-home during the pandemic for many office workers provided Chipotle with the incentive and opportunity to expand to more suburban markets to attract the customers where they live, and away from Chipotle’s historic urban core focus,” Goodman said. “This shift is particularly important for Chipotle given our data suggests that pre-pandemic lunch accounted for a majority of the concept’s sales — if workers are not in urban cores during the day, you need to go to where they are.”

Customers keep coming back

The chain’s positive foot traffic also supports its growth plans. Chipotle remains a top performer in the fast casual segment this year, with visits up by mid-teens percentage points versus pre-pandemic levels, R.J. Hottovy, head of analytical research at Placer.ai, wrote in an email to Restaurant Dive. This bump reflects digital ordering enhancements and its Chipotlane pick-up windows, where visitations outpace the rest of the chain.

Traffic at 75 Chipotlanes that have been open since 2019 and 2020 showed dramatic differences compared to standard Chipotle restaurants during the quarter. Although visits moderated in March and early April, visits at these Chipotlanes peaked during the week of Jan. 31, 2022, with a 59.7% increase compared to the same week in 2021, according to Placer.ai.

“On average, it only takes about 10 minutes from the time a guest places an order until it's ready for pickup, which is simply outstanding,” Niccol said. “Chipotlanes also continue to outperform non-Chipotle locations due to the convenience, which is encouraging since digital order pickup is our highest margin transaction.”

Digital sales remained steady, making up 41.9% of food and beverage revenue even though dine-in sales increased 33% during the quarter. In 2021, online sales grew nearly 25% and were over $3.4 billion, compared to over $2.7 billion in 2020, according to the company's 2021 year-end report.  

“We think the company’s strong digital sales share … provides some support to margins (given higher digital margins, especially in the digital order and pickup channel) and better engagement with customers,” Goodman said.

Chipotle's loyalty membership is also up, reaching nearly 28 million members during Q1, Niccol said. During the quarter, the company relaunched Guac Mode, an exclusive benefit for rewards members to access surprise guacamole rewards. This offering resulted in the chain's highest social engagement ever, as well as loyalty enrollments of 35% week-over-week. 

“We continue to look for ways to increase access and convenience through alternate restaurant formats, digital-only menu offerings and leveraging our large and growing loyalty program,” Niccol said.

Attracting labor to support growth

While Chipotle has had little problem attracting new customers, it continues to struggle — like just about every other restaurant chain — with increased labor costs and high turnover. Labor costs during the quarter reached about 26% of operating costs due to the company's decision to increase average wages to $15 per hour in May 2021, Hartung said.

“Opening 8% to 10% new restaurants per year means we need more crew, more GMs, more field leadership,” Niccol said. He added that team members can become restaurateurs — the highest general management position — in a minimum of 3.5 years with average compensation of $100,000. General managers can also become certified training managers, field leaders, team directors and regional vice presidents, he said. 

In 2021, the company promoted 19,000 team members and 90% of restaurant management roles were internal promotions, according to the company’s 2021 Sustainability Report Update. However, turnover increased in 2021, with hourly team member turnover reaching 194% compared to 2020 when it was 141%.

“By enhancing the candidate experience, onboarding, and training, we are poised to improve retention,” Chipotle said in its report. 

Chipotle recently enhanced its training and development programs, rolling out an artificial intelligence-based learning program, dubbed Spice Up, that provides immersive learning, development opportunities and upskilling for all employees, Niccol said. Chipotle is also in the process of pushing out a scheduling tool to ensure that the right people are in the right positions at the right time, he said.

“Our people are our greatest asset and well-trained and supported employees preparing delicious food served quickly equates to an excellent guest experience,” Niccol said.