And nobody drew the line in the asphalt sharper than Chipotle.
While the category pioneer spawned a fast-casual movement that would fill with copycats in the coming years, Chipotle’s ethos, sourcing, and operational style proved equal parts innovative and stubborn.
Put simply, the notion of Chipotle opening a drive-thru was unlikely on its best day.
However, former Taco Bell leader Brian Niccol’s arrival as CEO in the winter of 2018 turned the first blank page in Chipotle’s modern playbook. From digital make-lines to pickup shelves to delivery, loyalty, quesadillas, TikTok, esports, and more, Niccol targeted the one area he believed the brand was losing ground quickest: accessibility.
Some of that traced back to image, and Chipotle’s slide into an “invisible” brand, as Niccol put it—a restaurant that reacted to culture instead of one that led it. The other was a data point Niccol referenced often in 2018: Chipotle’s customers reported less than 50 percent awareness on its digital platforms.
Presently? Digital represented a $916 million business for Chipotle in the second quarter of 2021. When Chipotle collected $262 million in digital sales in Q2 2019, it marked a 99 percent year-over-year rise and was more than it produced in all of 2016.
There are myriad factors at work, notwithstanding COVID-19 and its consumer push into off-premises channels. The fact digital mixed 48.5 percent of total sales in Q2 for Chipotle is, naturally, a stat that won’t fully stick as restrictions loosen.
Yet the digital customer and Chipotle’s evolution have given rise to something that’s hardly an outlier.
In November 2019, Niccol addressed CNBC’s Evolve Summit in Los Angeles. He claimed it was taking Chipotle “all of 12 seconds” to get food to customers through its “Chipotlanes.”
The brand began testing the earlier generation of these in late 2018. Tabassum Zalotrawala, Chipotle’s chief development officer, says the pilot was viewed as a precursor to what might become a full-on drive-thru. But Niccol’s 12-second observation flashed the light bulb.
“We thought, wait a minute, why would we ever look for a full drive-thru experience?” Zalotrawala says. “Because that seemed so yesterday.”
The Chipotlane doesn’t have a menuboard. It’s a digital order drive-thru pickup lane where guests who pay in advance arrive and get their food from a quick handoff. Restricting Chipotlanes to digital orders stripped friction out of the process. And it avoided past concerns that kept Chipotle from ever seriously considering the channel, fast casual perception or not.
“Could you imagine a guest at a speaker box building their entrees by calling out multiple ingredients off a menuboard?” says Haris Khan, senior director of restaurant excellence at Chipotle. “It would slow throughput, negatively impact operating margins, and be a terrible guest experience. If there’s an opportunity to take a chance and test something new that will be beneficial for both guests and the brand, then we’re going to try it.”
Khan says Chipotle is the first restaurant brand to unveil a digital order drive-thru pickup lane—a club that’s crowding by the day, from Noodles & Company to larger brands, such as McDonald’s, which are plotting lanes just for digital orders to run alongside traditional ones.
Being first, though, meant Chipotle needed clear restaurant signage and messaging for consumers, Khan says. “Alternately, for our restaurant team members, we needed to understand the impact to the current digital make-line flow and iron out the standard operating procedures,” he says.
There wasn’t much mystery over whether or not people would accept Chipotlanes, however.
“To keep it real, I thought guests would love it,” Khan says. “Any time you can enhance the guest experience by expanding access and minimizing friction simultaneously, it is usually well received.”
The best evidence for the Chipotlane’s aptitude is a simple counting game. There were only a handful in 2019. At that point, Chipotle focused on picking proven, established markets to give them a go and see how results compared.
In summer 2021, though, the brand debuted its 250th. “When I think about that—that really amazes me,” Zalotrawala says.
Chipotle opened 56 locations in Q2. Forty-five of those included a Chipotlane. And of the 200 or so stores it expects to bring to market across all of 2021, roughly 70 percent will feature the window. If that unfolds as designed, we’re talking 140 Chipotlanes added to the mix in 12 months.
The “accessibility” Chipotle references is where the whitespace lies. Because, in truth, 250 remains a modest fraction of the 2,850-plus Chipotles across America.
Meanwhile, Niccol is confident the brand can grow $2.4 million average-unit volumes (trailing 12-month volume as of Q2) well past historical peaks of $2.5 million and into $3 million territory. This as it balloons to 6,000 North America units.
So a multi-billion-dollar business is staring down Chipotle, and it’s only going to gain additional access the more Chipotlanes that open. As CFO Jack Hartung noted in July, “The best returns we can generate are by investing in more Chipotlanes.”
The metrics support Hartung’s confidence. New Chipotlanes continue to open with sales 20 percent higher than traditional formats. They operate with 200 basis-points higher restaurant-level margin. This incremental profit comfortably offsets the $75,000–$100,000 cost of a Chipotlane and yield cash-on-cash return of at least 500 basis points above standard locations, BTIG analyst Peter Saleh said.
Also, over the trailing 12 months, Chipotlanes drove about a 15 percent higher overall digital sales mix. This is critical given today’s shifting consumer preference in light of COVID. The Chipotlane skews heavily toward order ahead—the brand’s highest-margin transaction, and a vivid counter-balance to third-party delivery, where it’s had to take price increases to offset cost.
Saleh believes, by 2025, there could be 1,000 Chipotlane locations through new builds alone, representing about 30 percent of domestic units. Saleh also sees runway for “several hundred” retrofits as roughly 80 percent of Chipotle’s existing stores are free-standing or end-cap sites.
Lastly, Chipotlanes could eventually enable the brand to expand menu offerings. The entirely digital, order-ahead setup allows ample time for food preparation and eliminates typical throughput concerns. Think digital-centric menu launches, like Chipotle’s March quesadilla (appearing in about 10 percent of Chipotle’s transactions as of Q2), and potentially, even late-night hours with drive-thru only service and a breakfast test, Saleh said.
The Chipotlane, clearly, triggered a significant turn for the brand and its prospects. Chipotle opened 40 locations in Q4 2018. The same timeframes ending March 31, June 30, and September 30 (all in 2019) saw openings of 15, 20, and 25 locations, respectively. In June 2018, the chain announced a revamp that included closing 55–60 stores. Chipotle had 2,408 restaurants on December 31, 2017 and 2,491 a year later.
It’s added 362 since, but 349 of those have come since March 31, 2019.
In other terms, Chipotle is tracking back to its old expansion prowess, before the 2015 E. coli crisis evaporated about half of its market cap and sent the brand on a multi-year journey to win back consumer trust. The brand added 216 locations from 2014–2015 and 227 the following year. It then sloped to 173 and 83 in respective calendars.
But as previously noted, 200 are on deck for this calendar alone. And that’s only the start, executives say.
“We’ll continue to learn and refine our approach to judiciously accelerate our Chipotlane portfolio, whether it’d be an older, existing restaurant, strategic relocations of existing restaurant, or through new restaurant additions,” Hartung said.
Beyond what might come down the pipe, COVID put drive-thru under a microscope sector-wide. Chipotle was no different.
Zalotrawala, who spent time at Panda Express, Arby’s, and Wendy’s earlier in her career, says the mission statement of fast-food drive-thru has always been a challenging one. Deliver food in a minute and a half, or two minutes. “But it isn’t reality,” she says. “The speed thing is counter-intuitive to a good guest experience. Because you’re asking your crew members to really rush through the orders, and that leads to ordering inaccuracy.”
If you want a positive guest experience, let customers customize their order in the comforts of their home, Zalotrawala says. Or their cars. Or wherever they might be. “And give your crew members the time to carefully prepare the order just like they would if you were in front of them,” she says.
Customers noticed Chipotle’s ability to bust that traditional drive-thru model in the past year-and-half of COVID conditions. “Chipotlanes served as the ultimate, touchless experience for our guests during the pandemic,” Khan says. “In uncertain times, we all were looking for the safest way to still experience the things we love and fortunately, Chipotlanes enabled that for many guests. As a result, we experienced a higher overall digital sales mix and sales at Chipotlanes compared to non-Chipotlanes.”
None of this would have worked, however, without the brand’s pre-virus investments. Namely, how it’s treated digital as operating a restaurant within a restaurant with second make-lines and dedicated resources. Zalotrawala says it was essential for Chipotle’s order-ahead business to receive specific assets. In some other concepts, second make-lines might kick into action only during peak hours. Or perhaps they’re smaller than the front, guest-facing ones. Yet Chipotle broke them apart evenly from the outset—the same size, the same pans, etc.—and continues to do so. “So imagine for a concept that’s not fully leveraging their second make-line or their digital make-line and they’re fulfilling their digital orders on the front line, in front of a guest that’s actually ordering at a Chipotle. Imagine the poor experience,” Zalotrawala says. “It’s horrible.”
"I think coming up now is the year of resurgence of the dining room. So keeping that in mind, it’s really important that we build the right kind of restaurant for the right trade area," says Tabassum Zalotrawala, Chipotle’s chief development officer.
At Chipotle, the directive is digital orders are never fulfilled on the front line, even when it’s not busy. “Just so we can be in that mindset and that culture of separating those two businesses,” she says.
With everything humming behind the operational curtain, Chipotle was able to scale, and scale quickly, when the chance arrived. COVID could rocket the process further.
Zalotrawala says the pandemic and unfortunate closures that followed, “opened up a treasure trove of real estate for Chipotle.”
And particularly former quick-serve sites with drive-thrus that present conversion opportunities. Chipotle, like other brands, witnessed tightness in the supply chain and a slowdown in the construction industry over the summer, whether it’s constraints on steel or lumber. Not to mention labor.
But these are the only things really standing in Chipotle’s way, and Zalotrawala views them as transitory pressures. “It’s a temporary problem and everyone is working through them,” she says. “But as it relates to building our pipelines, we’ve got a very heathy pipeline throughout the nation.”
Zalotrawala drives around smaller towns and is blown away by the opportunity ahead for Chipotle. Getting to 6,000 units would more than double the chain’s footprint. Even so, it would still have fewer domestic restaurants than Domino’s, Dunkin’, Burger King, Taco Bell, Starbucks, Subway, Pizza Hut, and McDonald’s boast today.
The fact Chipotle evolved its restaurant design in recent years only widens this conversation. The brand debuted a digital-only store in November just outside the gate of the military academy in Highland Falls, New York. Those could make sense in college towns, Zalotrawala says.
There’s also a Chipotlane-only construct, with no dining room, which Zalotrawala says is coming later this year in Ohio.
These models allow Chipotle to rethink trade areas once thought saturated, as well as explore fresh ones. It previously outlined a goal to reach 250 openings a year, something expected to unfold across a combination of expanding reach while also infilling mature markets with digital-first designs built to extract more dollars in areas that otherwise would have given Chipotle pause.
Call it the ability to pivot to a digital proposition or an on-store proposition.
And it was all in the works before the pandemic. “That’s why we’ve been really prepared,” Zalotrawala says. “This wasn’t a reaction to COVID at all. In fact, I believe, dining rooms are filling up. People are tired of being cooped up in their homes and just sitting in their car and eating, and they’re ready to get out and socialize, as a result. I do believe the last year was the year of the order ahead and drive-thru. I think coming up now is the year of resurgence of the dining room. So keeping that in mind, it’s really important that we build the right kind of restaurant for the right trade area.”
With respect to Chipotlanes, it’s a three-pronged go-forward strategy. New units, of course. But also remodels—a program that’s still in the stage-gate process. Chipotle expects to do about a half dozen or so this year. “The early results are very encouraging. And why? We just added another channel,” Zalotrawala says. “And as guests that are going to a particular neighborhood store who have been going to a neighborhood store for years, suddenly start to realize, ‘oh my gosh, there’s this lane now. I don’t have to park my car.’ They’re going to start using that more and more.” And lastly, relocations where it makes sense from a trade area and real estate perspective.
All of these efforts, though, center on Chipotle’s day-one aim: Create incremental sales and become more convenient to customers.
“There absolutely is a clear focus to continue building as many Chipotlanes as possible,” Khan says.