To drive its digital sales, Chipotle Mexican Grill, Inc. CMG is opening its first digital-only restaurant Chipotlane Digital Kitchen in Cuyahoga Falls, OH. The restaurant will start operating later this month.
Located on 994 Graham Road in Cuyahoga Falls, the new prototype comprises a smaller footprint (compared with a traditional restaurant), Chipotlane drive-thru, a walk-up window (for pick-up and delivery purposes) and patio seating. However, the model eliminates the option of dining room access and front-line service. To avail the services, guests can place orders through the Chipotle.com, Chipotle app and marketplace partners.
Increased Focus on Chipotlanes
Ever since its launch (in early 2018), the Chipotlane format has continued to enhance access, ease and satisfaction for guests, thus demonstrating a strong performance. In third-quarter 2021, Chipotle opened 41 restaurants, of which 36 were Chipotlane based. Digital gap for restaurants (with Chipotlanes) was approximately 15% higher than the non-Chipotlane ones. The addition of Chipotlanes bolstered new-store restaurant sales, margins and returns.
Tabassum Zalotrawala, chief development officer, Chipotle, stated “Our portfolio of approximately 300 Chipotlanes perform with the highest margins across the board, so we continue to evolve our restaurant design with formats such as the Chipotlane Digital Kitchen to best suit our growing digital business.”
Given the solid customer acceptance (on account of convenient access channel), Chipotle has reconfigured 12 of its existing restaurants (year to date) to feature the digital order pickup lane. For 2021, CMG expects more than 75% of its new openings to have a Chipotlane in it.
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Shares of Chipotle have gained 21.1% so far this year compared with the industry’s 11% growth. Chipotle benefits from its digital efforts, Chipotlane add-ons and marketing initiatives. Besides, strength in digital sales, rise in menu prices, new restaurant openings and a higher restaurant-level operating margin have been aiding the company for a while. Also, a solid financial position with no debt is encouraging.
Chipotle continues focusing on the stage-gate process and leveraging digital programs to expand access and convenience. Of late, earnings estimates for 2022 have moved up, thereby raising analyst optimism on the stock’s potential.
Zacks Rank & Key Restaurant Picks
Chipotle currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same space are Papa John’s International, Inc. PZZA, Noodles & Company NDLS and McDonald’s Corporation MCD.
Papa John’s currently carries a Zacks Rank #2 (Buy). PZZA benefits from its off-premise business model. Sales pertaining to the same exceeded the pre-pandemic levels. We believe that higher customer count coupled with targeted off-premise marketing is likely to drive the channel’s performance in the upcoming periods.
Papa John’s reported better-than-expected earnings in three of the trailing four quarters, the average surprise being 27.2%. PZZA’s fiscal 2021 earnings are likely to witness growth of 142.9%. The stock has soared 42.6% in the past year.
Noodles & Company is currently Zacks #2 Ranked. Robust comparable restaurant sales growth and increased average unit volumes are favoring NDLS. In third-quarter 2021, average unit volumes climbed 16% year over year.
The Zacks Consensus Estimate for Noodles & Company’s current financial year sales and earnings per share (EPS) suggests growth of 22.5% and 196.6%, respectively, from the corresponding year-ago period’s levels. NDLS has returned 13.8% in the past year.
McDonald’s carries a Zacks Rank #2 at present. A robust drive-thru presence, and investments in delivery and digitization in the past few years have helped MCD tide over the pandemic. MCD has a trailing four-quarter earnings surprise of 6.8%, on average.
The Zacks Consensus Estimate for McDonald’s current financial year sales and EPS suggests growth of 20.9% and 55.7%, respectively, from the corresponding year-ago period’s levels. MCD has rallied 23.4% in the past year.
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