Chipotle says that he has built a profitable delivery business

By Erika Adams, Skift Table

February 6, 2019

Many restaurateurs worry about the negative consequences of using third-party delivery services, ranging from reduced profit margins to a lower-than-normal customer experience for delivered foods.

Chipotle, however, wants to be clear: delivery is a growing business and extremely profitable for the chain.

Shipment sales increased approximately 13 times in the fourth quarter of 2018 compared to channel sales in the fourth quarter of 2017. Brian Niccol, CEO of Chipotle, linked the slowdown in sales largely to the Chipotle's free distribution jug from December 17 According to the company, nearly half of Chipotle's customers who subscribed to the transaction were new or unused customers, and sales of shipments continued to rise, once the promotion is over.

Niccol attributed the success of the promotion to the fact that the marketing team linked him to an event (university football championships) and gave him a satisfying experience. DoorDash, which powers Chipotle's white label distribution system, told the company that Chipotle's shipments were among the fastest in its system. Niccol also noted that burritos and bowls were simply foods designed to travel well. Fry complaints are not a problem at Chipotle.

"Giving people delicious food in about 30 minutes at home, while watching what they watch, seems like a good idea for our consumer," Niccol said during a fourth quarter earnings conference call. .

There has also been "very little overlap" in delivery sales through Chipotle's integrated channel for Chipotle applications and third-party services, suggesting that the investment is worthwhile to deliver on-site delivery Chipotle's web and mobile application while satisfying orders through third parties. markets.

Make the delivery profitable

Chipotle Chief Financial Officer Jack Hartung told badysts that although Chipotle still needs to charge an additional commission on delivery orders, the chain is making substantial profits on delivery sales.

The second Chipotle manufacturing line, which is an additional food badembly line installed in each restaurant specifically to handle outside orders, allows for a much more efficient delivery delivery process. In addition to this, Chipotle has invested in digitizing each of these two lines to make it easier for employees to fill out delivery notes quickly and accurately.

Incoming orders are automatically sorted according to the time at which they must be prepared and ready to be picked up. Current orders are displayed on a large digital screen installed just above the badembly line, highlighting the ingredients to add to each order.

Hartung explained that the lines of the second brand have significantly increased the accuracy and speed of orders, and that there is no cross between these orders and customers serving customers who enter the restaurant. This is a completely separate activity, allowing restaurants to handle many more orders.

In addition, Chipotle will soon launch prepayment capabilities for its delivery partners. There is no stop to pay when deliverers come to pick up their orders.

All this efficiency contributes to the increase in order volumes, which allows the channel to become a profitable business.

Delivery costs the customer more, generating a higher initial profit margin for restaurants. A bowl of barbacoa burrito starts at $ 9.95 at Chipotle's Manhattan settlements. The same order, selected for delivery on the Chipotle website, starts at $ 13.94, excluding taxes and gratuity. As long as the volume of delivery orders remains as high as it is and adds only additional revenue from in-store orders, it's a good deal for the chain.

Chipotle continues to pay delivery fees to the third-party services it uses, but "for the moment, the increase is such that, as long as it is additional customers coming from Chipotle, we can cover these costs", explained Hartung.

"It's not only that it's profitable, it contributes to our success. [overall] margins of how we have put it in place now, "he added.

Sales results

Chipotle announced an increase in operating profit margin at the catering level from 16.9% in 2017 to 18.7% in 2018, according to its annual results report. Digital sales increased 65.6% in the fourth quarter compared to the same period last year, now accounting for 12.9% of total sales.

Same-store sales increased 6.1% in the fourth quarter compared to the same period last year, which the company attributes largely to the success of end-of-year marketing campaigns.

Chipotle's shares rose nearly 10% after the announcement of the company's results was announced.