Chipotle, the popular fast-casual restaurant, is surviving the coronavirus pandemic even as the industry at large struggles. CFO Jack Hartung addressed Chipotle’s peculiar sales, expressing his belief that their worst days have passed, in a video conference with Yahoo Finance.
"We hit what looks like the bottom, [sales] down 30 percent, at the end of March," Hartung said. "Things have improved a bit in April. And in the last week, things improved even more."
The chain’s sales are now down by just shy of 20%, which Hartung considers good news. "It’s hard to imagine celebrating [our sales being] down to only the high teens ... But considering how other restaurants are dealing with this, we feel pretty good. Hopefully it stays at this level and improves from here," he said.
Like many restaurants, Chipotle has seen its sales drop, but offsetting this drop is a big increase in online sales. The chain’s digital sales grew 81%, to $372 million, during Q1 2020, making it the highest quarterly level for digital sales, Restaurant Dive reported. Digital sales represented 26.3% of sales during the quarter.
Last month, Chipotle added a free delivery partnership with Uber Eats and shifted its advertising budget to streaming platforms. This resulted in increased engagement and digital sales growth of 103%. In March, signups for the company's loyalty program spiked nearly fourfold, to 11.5 million enrolled members, according to Restaurant Dive.
Hartung said that while Chipotle has successfully managed to stay mostly open during this time, figuring out how the dining experience will change when restaurants reopen poses a new kind of challenge.
“Our first step will be to follow local jurisdictions," he said. "They’re going to dictate how many people can be in our restaurants at once. We’ll probably have to take some tables out to create six feet of space between parties."
At a recent senior meeting, Hartung said, the c-suite discussed keeping condiments behind the cashier and sanitizing them between each use. Additionally, knives and forks may be removed from the beverage stations to mitigate the risk of cross contamination.
"We’re going to look at everything customers will touch in our restaurants, and see if there’s a better way for them to come to Chipotle and feel safe," he said.
Roughly 97% of Chipotle restaurants in the U.S. have remained open, in some capacity. The others — about 100 locations — have closed. Hartung said the c-suite has not forgotten about those employees.
"Our employees have, since day one, been the most important," he said. "No matter what, we’re going to take care of our folks."
Hartung said the very few locations to have closed were because they were located in a mall or shopping center that was also closed. In those situations, workers were reassigned to nearby Chipotle branches. But for workers in remote locations, the company paid them for two weeks and then furloughed them, which allows them to continue receiving benefits.
"For those employees enrolled in school, we reduced the minimum hours required to be eligible for our education assistance program to zero," Hartung said. "Normally, there’s a weekly minimum required."
The one way in which Chipotle is pumping the brakes definitively is on menu innovation. "Menu innovation is continuing, but unlikely to make it to the restaurant test phase," Hartung said. "Innovation is happening; it just won't reach customers in near future."
As for real estate, the company is still looking at site acquisition, but it's slowing on construction. "It's difficult to get inspectors and contractors," he said. "So we're deferring most of our April groundbreaking until the market is ready. When we emerge at the other end, growth will pick up where we left off."
A Yahoo reporter pointed out that thousands of restaurants will be unlikely to reopen in the U.S. following the pandemic. How will that change Chipotle’s path?
"That makes me sad," Hartung said. "The people in our industry suffering the most are the independent ones without a highly capitalized balance sheet."
He said he hopes the government stimulus packages will help independent restaurants make a comeback.
"But if [their space] is a great site for Chipotle, or in an area we don't already have a presence, that'll create opportunities for us," Hartung said. "While I hope most businesses will survive, [if they don’t], it does mean there are probably opportunities for us on the other end."