In response to online videos and social media roar about the portion sizes at Chipotle Mexican Grill restaurants, analysts from Wells Fargo Securities LLC ordered their own burrito bowls from eight locations to test the “weight debate.”
A trend of customers entering Newport Beach-based Chipotle’s (NYSE: CMG) restaurants to record the employees making their orders and walking out if they deemed the portions too little began circulating shortly before summer started.
Wells Fargo analysts in June decided to order, half in store and half digitally, 75 burrito bowls in New York City to measure the weight of each dish and compare.
The analyst team found that measurements went both ways at Chipotle, Orange County’s most valuable public company with a market value near $76 billion as of last week.
“At the median, in-store orders and digital orders were very similar,” Equity Analyst Zachary Fadem wrote in the note to investors.
“That said, consistency varied widely, with some locations serving bowls that weigh about 33% more than other locations (on equivalent orders); and the heaviest digital/in-store bowls weighing 87% [to] 47% more versus the lightest.”
Fadem added that “order consistency remains an opportunity” for the Newport Beach-based restaurant chain.
The largest bowl the analysts ordered, at 26.8 ounces, weighed 87% more than the smallest one, which came in at 13.8 ounces. Fadem noted that the 10 lightest bowls were all digital orders mostly from the same restaurant.
The results also showed that store-ordered bowls were a bit more consistent than the digital orders when sorted by weight. The average weight of a burrito bowl was around 21 ounces.
Per the study, the weight of the 75 burrito bowls varied mostly based on the location as well. At one of the stores, the Chipotle bowls weighed in at 17 ounces while another restaurant’s orders weighed over 23 ounces.
Analysts also looked at how the media attention impacted real-time operations.
Using Bloomberg’s alternative data, Chipotle “trends stepped back slightly in mid-May” although gains in foot traffic continued in the following month.
Google searches for “Chipotle portion” reached an all-time high from May to June, according to analysts.
“CMG spend, per Bloomberg ALTD, decelerated around four points around initial media buzz re[garding] smaller portion sizes, but it looks like the consumer has a short memory with trends reaccelerating to [double digit percentages] in early June,” Fadem wrote.
Overall, Chipotle’s year-over-year spend remains healthy, Fadem concluded.
Wells Fargo Securities currently holds an ‘overweight’ rating for Chipotle with a target price of $66. The stock has climbed 60% to $56.53 since its 52-week low of $35.37 in October.
Chipotle is scheduled to announce second quarter results on July 24th. Analysts are expecting sales to climb 16% to $2.9 billion.
Digital
Despite digital orders being the culprit of delivering Chipotle’s lightest burrito bowls, the chain’s rewards program continues to grow, according to Wells Fargo.
“Chipotle’s digital customer base continues to grow with QTD daily active users +32% y/y, or Chipotle app downloads +12% y/y,” per Apptopia, Fadem wrote.
Digital sales represented 36.5% of total food and beverage revenue in Chipotle’s second quarter ended March 31, which includes food and beverage revenue generated through its website, mobile app, third-party delivery aggregators and revenue deferrals associated with Chipotle Rewards.
The rewards program started five years ago, and the company currently counts about 40 million members.
“Through our marketing initiatives, we continue to find successful ways to drive enrollments, and we are leveraging our digital team to create a seamless app experience and deliver more relevant journeys for our rewards members,” Chief Executive Brian Niccol told analysts on an earnings call in April.
“The goal is to drive higher engagement in the program, which results in higher frequency and spend over time.”
