Chipotle 2Q15 Earnings Call Notes

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4.3% comps

“During the quarter, we generated revenue of $1.2 billion, an increase of 14.1% on comparable restaurant sales growth of 4.3% and the opening of 48 new restaurants. This produced diluted earnings of $4.45 per share, an increase of 27.1%.”

The only national chain that’s gone non-GMO

“Chipotle is the only national chain where consumers can eat anything on the menu without worry about eating GMOs. This direction is not new for us, and the decision is very consistent with our overall culture of serving food with integrity.”

Set our sights on new tortillas

“With our food now made entirely from non-GMO ingredients, we have set our sights on making better tortillas. These artisanal tortillas are made using only five ingredients: flour, water, starter, vegetable oil, and salt. And when you consider that the starter, which is the leavening agent, is made from flour and water, it’s really just four ingredients. While this might sound like a relatively simple undertaking, it’s actually quite a challenge because one has to account for a number of variables: moisture in the flour, temperature and humidity in the bakery, strength of the starter, et cetera. And many of the chemical additives in commercial tortillas are designed to mitigate these variabilities.”

We have to reinvent the way tortillas are made at scale

“Returning to this fresher, simpler tortilla essentially requires that we reinvent the way tortillas are made on a large scale, and that’s exactly what we’re doing.”

Some local markets have minimum wage boosts that will lead to price increases

“We typically pay above minimum wage in all of our markets, so a normal increase in local wages usually has little effect on us. But in some local markets the minimum wage has been or soon will be pushed well above our national average rate.’

“In the San Francisco Bay Area for example, the minimum wage was recently increased to over $12 an hour. This increase coupled with higher occupancy and other operating costs excluding food costs contribute to an overall cost of doing business of 30% or more compared to 30% or more higher than our average Chipotle. But our menu prices in the San Francisco area were until recently only about 4% above the typical Chipotle and were lower than most competitors in the area. So as a result of looking at all of these factors, we decided we were underpriced in San Francisco and we recently increased prices by 10% in the 10 restaurants within San Francisco and by 7% for the 74 restaurants outside San Francisco in the Bay Area.”

We’re still evaluating implementing Apple Pay

“We’re still in the process of evaluating the level of effort that’s going to be required to implement Apple Pay in particular. And we certainly see that as being a significant benefit to us once we can get that enabled, especially if it in any way speeds throughput at our restaurants. But we’re also on a continuing basis updating our mobile ordering app to be more efficient.”

Slight negative traffic

“the comp was 4.3%, menu pricing was 4%. Of the 0.3%, it was a very slight negative traffic, 0.3% negative traffic, and that was offset by 60 basis points or 70 basis points of mix.”

We used to pay a lot more attention to first mover advantage, but then we realized that we could out compete

“we used to pay a lot of attention to the first mover advantage theory. When we were partnered with McDonald’s, they were telling us how important it was in their development. Although, if you look at our history and our sales trends when we come into markets and we’re not the first mover, we definitely pass them, I mean, California is the best example where we had two big competitors, and we severely lagged behind them. Over time though, through great execution and through a great people culture and sharing with our customers what makes Chipotle food special, we quickly took the lead.”

Still opportunities

“The other thing with marketing is we still believe that – or we still know that there’s lots of people that have never been to Chipotle, something like 35% or 40% of people have never been to Chipotle. We know that when we study our existing customers, that there is like 55% of our customers only come a couple times a year”