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Sunday, Oct 1, 2023

Chipotle Continues to Feed Digital Business Growth

Recent moves to establish a ghost kitchen presence and Irvine testing center by Chipotle Mexican Grill Inc. proves limber evolution isn’t just for scrappy start-ups.

The Newport Beach restaurant operator (NYSE: CMG) is anything but a startup, with a footprint of more than 2,700 restaurants and over 94,000 employees.

With a market cap of $36 billion, Chipotle ranks No. 2 among Orange County’s public companies by market valuation, trailing only Edwards Lifesciences (NYSE: EW), which is valued at more than $53 billion.

Chipotle also ranked fourth on this week’s list of the Fastest-Growing Public Companies among businesses with revenue of $500 million or more (see page 27). Chipotle revenue for the 12 months ended June 30 totaled $5.6 billion, an increase of 21% over a two-year period.

Digital Kitchen

That’s plenty of runway to try new things at the Brian Niccol-led business, as evidenced earlier this month with the opening of its first digital kitchen.

That means there is no in-restaurant dining. The location, in Highland Falls, N.Y., serves solely as a pick-up point for mobile and delivery orders.

The new digital concept is seen as a way of keeping the chain in lockstep with its growing digital business, which was up in the quarter ended Sept. 30 by 203% from a year earlier, to $776.4 million.

The move also is about inserting the brand into areas where a regular Chipotle, which averages about 2,500 square feet, wouldn’t fit due to size constraints.

The digital restaurant is expected to take up less space than a traditional Chipotle, although Chief Development Officer Tabassum Zalotrawala declined to peg an average size on the new type of restaurant, other than to say it’s smaller and would push the brand into “more urban areas that can’t support a full-size restaurant and allows for flexibility with future locations.”

Why Highland Falls was selected for the first go of the digital kitchen was not just a matter of real estate timing.

“The Northeast continues to be a strong market for Chipotle,” Zalotrawala said of the thinking behind the location of the first ghost kitchen, which is not far from West Point. “We were very thoughtful in our selection of Highland Falls as a test market for the digital kitchen as over 90% of our audience is cadets and staff at the military academy and families living outside of the campus who crave Chipotle, but do not have access to one in their neighborhood.”

Digital Future

The executive declined to say just how many digital kitchens could potentially be opened, but it appears not to be a one-off project for the company.

Digital accounted for 48.8% of the chain’s sales in the September quarter, and about half of that was for delivery.

“We are planning to open more digital kitchens and are carefully evaluating the best trade areas for Chipotle in which to expand this test,” Zalotrawala said. “These will be areas where Chipotle has a higher volume of sales through digital business.”

Industry Push

Chipotle’s not the only area restaurant giant to see opportunity and iterate around digital.

OC’s largest restaurant operator, Taco Bell Corp. of Irvine, said back in August it would roll out a new restaurant concept it’s calling Taco Bell Go Mobile aimed at speeding up service times by focusing solely on off-premise sales: mobile, drive-thru and curbside pickup. As is the case with Chipotle, the Taco Bell concept allows the chain to ink smaller real estate deals of 1,325 square feet, versus the average 2,500-square-foot Taco Bell.

Cultivating Innovation

Chipotle’s building out an operations infrastructure to support its moves with its newly erected, 22,000-square-foot Cultivate Center in Irvine to help with projects like the digital kitchen.

The space, located in UCI Research Park, serves as a test kitchen, production studio, training center and what the company calls its Center of Excellence for Design and Construction for building out restaurant prototypes.

Cultivate Center replaces a location near Chipotle headquarters that was being used for testing out new menu items. Before that, Chipotle was using its Next Kitchen, a New York testing ground open to the public.

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