Dive Brief:

• Chipotle increased its comp sales by 17.2% during Q1 2021, driven by 133.9% growth in digital sales, according to its earnings report released Wednesday. Digital sales now account for 50% of the company's mix, up from 49% during Q4 2020. Just over half of the restaurant's digital sales were from order-ahead transactions as the company continues to add Chipotlane models to its footprint.
• During the quarter, 26 of the 40 new restaurants opened included a mobile-order-ahead Chipotlane, CEO Brian Niccol said on Wednesday during an earnings call with investors. The model increases sales, margins and returns, he said.
• Pickup orders are also more lucrative for Chipotle than delivery orders, Niccol said. During the company's Q1 2021 call, CFO Jack Hartung said Chipotle hiked delivery prices by 4% earlier this month to offset the cost of third-party delivery. This was in addition to the 13% increase on delivery menu prices it made during Q4 2020.

Dive Insight:

Capturing 50% of sales through digital channels is a major milestone, but not surprising given Chipotle's rapid gains in this channel over the past year, as well as its pre-pandemic digital performance. Still, this mix does illustrate just how much of an impact the pandemic has had on consumers' digital ordering habits. During Chipotle's Q1 2020 earnings period, which ended just two weeks after COVID-19 lockdowns began, digital sales were just over 26%.

Chipotle is a few years ahead of most of its peers, though it's clear the industry as a whole is headed in this direction. Taco Bell executives, for example, expect 50% of its sales come from digital channels within the next couple of years, though they're currently at just above 10%. Market research company Incisiv expects that digital sales will make up 54% of limited-service and quick-service business by 2025. This represents a 70% increase over pre-pandemic estimates.

In February, Chipotle's CEO Brian Niccol touted the work Chipotle has done in making its digital channels more convenient, adding enhancements like unlimited customization, contactless delivery and group ordering. The company is also piloting order-ahead carside pickup and digital-only restaurant models. In March, Chipotle also added a quesadilla to the menu, selling it only through digital channels, which has been successful so far.

"The benefits of a digital only offering are that it leverages our digital scale while removing operational friction by utilizing our digital kitchen. Although it's only been out for about a month, we're encouraged by this performance thus far with an incidence mix of approximately 10% and expected to remain a guest favorite moving forward," Niccol said of the menu item on the company's Q1 2021 call.

The company has noted digital orders provide both sales leverage and labor efficiencies, which is why it is honed in on this part of the business. Labor costs for Q1 2021 were 24.9%, CFO Jack Hartung said during the company call, a decline of 300 basis points that was driven mostly by efficiencies related to digital orders but partially offset by labor inflation. The company expects labor costs to hover around the low 24% range in Q2 2021.

Part of that focus comes from its Chipotlane model, designed for mobile order-ahead orders. During its Q4 2020 earnings call, Niccol said the digital gap between restaurants with Chipotlanes versus non-Chipotlane restaurants is about 10%, which is driven entirely by higher margin digital pickup orders versus delivery orders. Sales at new Chipotlanes outperformed non-Chipotlane units 15%, Niccol said on the Q1 2021 call. The company still plans to have more than 70% of the roughly 200 restaurants it will open in 2021 include Chiopotlanes. The company said in February it plans to remodel up to 15 existing restaurants this year to include a Chipotlane.

The company's digital efforts have grown its rewards members to 21 million, more than double its 8.5 million members in 2019. This vast database enables the chain to gain information about its frequent customers and better retain those who access the company digitally.

Pickup orders aren't undercutting Chipotle's in-person transactions as dining rooms reopen and customers return to eat on-premise because these diners are in different categories, Niccol said during the Q1 2021 call. Ninety-two percent of Chipotle's restaurants currently offer on-premise dining with capacity limitations, he said.