Chipotle’s expansion plans include adding ‘digital-only’ restaurants to its menu

Discussion
Rendering of Chipotle Digital Kitchen, Highland Falls, NY - Source: Chipotle Mexican Grill
Nov 13, 2020
George Anderson

Chipotle Mexican Grill has announced plans to open its first “digital-only restaurant” tomorrow. The Chipotle Digital Kitchen, as it is being called, is located “just outside the gates” of the West Point military academy in Highland Falls, NY, and will allow cadets and other consumers in the area to place online orders for delivery or pickup. No matter their military rank, whether a freshman plebe or a general in the army, none of the restaurant’s customers will be able to take advantage of sit-down service.

The chain said that the new concept will enable it to restaurants in urban areas that don’t have the space to accommodate full-size format units. Chipotle is making the move after having seen its online sales skyrocket since the novel coronavirus pandemic hit the U.S. The restaurant chain reported total revenues growing 14.1 percent in the third quarter, with the increase driven primarily by its digital business, which was up 202.5 percent during the period. Online sales represented 48.8 percent of Chipotle’s total during the period, helping to drive its same-store results up 8.3 percent.

“The Digital Kitchen incorporates innovative features that will complement our rapidly growing digital business, while delivering a convenient and frictionless experience for our guests,” said Curt Garner, Chipotle’s chief technology officer, in a statement. “With digital sales tripling year over year last quarter, consumers are demanding more digital access than ever before so we’re constantly exploring new ways to enhance the experience for our guests.”

Roughly half of Chipotle’s online sales during the third quarter were delivered through a variety of third-party partners, with the balance picked up at the chain’s locations by customers. The downside of deliveries for the chain is the fees that it pays partners, which weigh on operating profits.

Chipotle is looking to increase the pickup share of its business and has focused on rolling out Chipotlanes, the chain’s version of a drive-through, whereby customers order ahead online or via the chain or third-party app before picking up their meals.

Customers who place orders at the Digital Kitchen for pickup will go to a separate lobby with its own entrance. The lobby, according to Chipotle, will allow customers to experience the same kitchen views, smells and sounds of one of its traditional restaurants. 

DISCUSSION QUESTIONS: Do you think digital-only restaurants are a viable option, beyond the pandemic, for operators to expand into areas where they normally would not think to open? Is Chipotle’s brand appeal and operation better positioned to succeed with a digital-only location or is this something that many fast-casual restaurants could/should also do?

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Braintrust
"My takeaway here is that we now have another vertical (QSR) that recognizes the value of efficient and effective BOPIS transactions."

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15 Comments on "Chipotle’s expansion plans include adding ‘digital-only’ restaurants to its menu"


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Mark Ryski
BrainTrust

I believe this is a viable option during this pandemic and beyond. Not only does this new format enable Chipotle to expand into new geographies that would not have been viable previously, but it also provides a digital service experience that will no doubt only increase in demand with consumers. I have no doubt that the pandemic is causing many of the fast causal restaurants – if not all categories of restaurant – to think creatively about how they approach the dining experience in the future.

Adrian Weidmann
BrainTrust

The past 10 months have proven that eliminating traditional in-store service has not adversely affected QSR sales. In fact, focusing exclusively on drive thru, BOPIS, and delivery is proving to be good for business. DBI, McDonald’s, and Inspire Brands are all pivoting and focusing their new designs on these digital channels. I jokingly stated three years ago that the QSR of the future would be a Conex box with a drive up window. Surprisingly, a microbe has turned this into a reality!

Shep Hyken
BrainTrust

We were already headed in that direction. Even before the pandemic retailers were looking for ways to go 100 percent digital. (Think Amazon Go.) The pandemic pushed us several years into the future when it comes to using digital solutions. It will be a long time before this is the norm, but we’re moving in that direction.

Joel Goldstein
BrainTrust

This is The Holy Grail of restaurants. Keep the prices and eliminate the “service” aspect of the business. The benefit of Chipotle’s brand loyalty is that they will be able to launch this as long as they deliver on quality. Several companies took this approach as their margins were squeezed by DoorDash and others moving into commercial kitchen containers around their metro area.

Suresh Chaganti
BrainTrust

Pizza chains have done this forever. Obviously the costs will be low – store footprint, staff, compliance overheads, restroom maintenance, etc.

But pizza has one great thing going – packaging is easy and flat. The food can be warmed easily without losing a lot of flavor. In other words it is perfect for takeout. Some cuisines, that’s not so much the case. Within Chipotle, burritos are good, but tacos not so great when you get them for take out.

Cold sub chains like Subway will work great for takeout as well.

Lee Peterson
BrainTrust

We just fielded a study on this same topic, also called “dark stores.” And of all retail verticals, restaurants ranked highest with consumers when asked “would you order for delivery or pick from a store you couldn’t shop?” So, Chipotle, who are advanced thinkers, doing this doesn’t surprise me. The other factor that COVID-19 accelerated was the adaption to using companies’ apps, which makes all this work. The combo of easy order and pickup/delivery is a no-brainer for consumers right now, but the fact that more than 80 percent say they’re going to continue buying this way is a little stunning. Face it deniers, the writing’s on the wall for a massive reduction of shoppable store count. (ps: Big Box stores ranked second in terms of shopping them as dark only — that makes even more sense.)

Dave Bruno
BrainTrust

My takeaway here is that we now have another vertical (QSR) that recognizes the value of efficient and effective BOPIS transactions. Third-party delivery fees are a huge problem for QSR restaurants, and I suspect this new format from Chipotle is the first of many innovations we will see designed to entice consumers to pick up their orders and cut Grubhub et. al. out of the transaction. It should be a very interesting and exciting time for QSR, as we will surely see creativity and innovation expand.

Gene Detroyer
BrainTrust

This is the part I like and I believe customers will find it very attractive. “Customers who place orders at the Digital Kitchen for pickup will go to a separate lobby with its own entrance. The lobby, according to Chipotle, will allow customers to experience the same kitchen views, smells and sounds of one of its traditional restaurants. ”

We will see more and more of this physical bifurcation in all types of retail establishments. It makes sense for the customer and it makes sense for the operators. “Win/win” is often overused, but this is pretty close.

Mohamed Amer
BrainTrust

As I have shared in previous commentaries, the pickup only formats with varying ”contactless” space, be it a drive-thru, curbside, or specialized lobby, is one more option that retailers need to offer consumers. The digital consumer is the engine of change in the economy. Those companies that combine data insights with emerging social trends, consumer trends, and behavior shifts have the opportunity to create value and capture out-sized gains.

Brandon Rael
BrainTrust

It’s been impressive to see how quickly Chipotle and the QSR segment has pivoted their operating models. A digital-first approach, along with plenty of automation and data science is absolutely a big part of how the segment is transforming during the COVID-19 pandemic.

With our society moving to remote work, education, fitness, and wellness from home, most of our meals will be takeaway or delivery. The QSR segment, especially the areas in the big metropolitan areas is dealing with a 30 percent to 50 percent traffic shortfall. By being able to adapt their operating models, the QSR segment can respond with safe and secure environments that are built around customer-first strategies.

Di Di Chan
BrainTrust

Chipotle’s brand has always focused on the food. Digital-only restaurants are a great option for food operators that specialize in promoting food but it is not a one-size-fits-all solution for all fast-casual restaurants. Post-pandemic, there will be a demand for a fast-casual restaurant dine-in experience too, especially from parents that want a quick and affordable break with their kids, or young adults that want an affordable place to hang out late. McDonald’s and IHOP are good examples of fast-casual restaurants that have incorporated the dine-in experience as part of their brand and should keep that option available post-pandemic too.

Natalie Walkley
BrainTrust

Dark stores are becoming more and more popular, as foot traffic slows and e-commerce grows. It was only a matter of time before more restaurants do this. I’ve heard these referred to as “Ghost Kitchens” and I think we’ll see an influx of this in the coming year.

James Tenser
BrainTrust

Many quick serve restaurant operators and independent casual dining restaurants made a fast pivot to takeout when the pandemic forced them to close their dining rooms. For some, the shift was a seat-of-the-pants decision. Others were highly strategic about it.

Pickup-only locations may choose to edit their assortments to eliminate items that take longer to prepare or are generally less popular. This will help a fast pace and enable optimal flow-through at peak hours. On the other side of the coin, they may choose to emphasize family meal bundles which may be available only by pre-order during the dinner rush.

Chipotle has a fairly complex set of menu offerings based on customizing meals from a limited number of components. Custom preparation takes time, so any steps to streamline the process should be under consideration.

Finally, no dining rooms means there is potential to match or exceed sales turnover with half or less retail square footage. I like the math here. These units can be more profitable and more of them can be shoehorned into high-traffic locations.

Casey Craig
BrainTrust

This business model is a great way for brick-and-mortar and delivery to find a common ground. Fast-casual restaurants are all about food and convenience, so this a great opportunity for them to provide another option to earn revenue, without spending a lot of money on real estate. And though we’ve seen a boom in BOPIS and delivery this year, I believe the pandemic only accelerated these trends and we will continue to see them even after restaurants start to open up again.

Craig Sundstrom
Guest

This article is somewhat confusing: supposedly there is “no sit-down dining,” yet the picture seems to show just that … albeit limited (I don’t fault George, the photo comes from the PRWire story).

As for the idea itself, I’m not overly enthusiastic: suffice it to say if you don’t have access to a PC/Smartphone/tablet, you’re out of luck (This probably isn’t a huge issue, but we often discuss how businesses can unintentionally discriminate, and this would seem to be an example). Also, if you don’t understand how this operates, you’re apt to be disappointed when you step inside expecting to order.
I think the (potential) problems cited above will be minimal for this particular location — given the somewhat captive clientele it will serve — but I think they might start to surface with a widespread rollout.

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"My takeaway here is that we now have another vertical (QSR) that recognizes the value of efficient and effective BOPIS transactions."

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