🌶 Chipotle: Is Digital The Secret Ingredient?

Facebook Vs Australia. Walmart increases minimum wage.

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🌶 Chipotle: Is Digital The Secret Ingredient?

Chipotle (CMG) released upbeat results for 2020 in spite of the pandemic decimating restaurant business in general, courtesy of its digital presence.

Background: Founded in 1993 by previous CEO Steve Ells, Chipotle saw early success and rising demand due to prioritising highly quality ingredients. It drew attention from McDonald’s in 1998, leading to a minority investment which helped Chipotle expand from 16 outlets in 1998 to over 500 outlets by 2005.

McDonald’s divested its ownership of these stores and they became fully owned by Chipotle in 2006. The company went public the following year with shares listing at $22 and closing at $44. Since then, the shares have gained 3,300% as of yesterday.

Chipotle’s emergence as a winner through the pandemic only adds to its history of successfully navigating systemic shocks (2008 financial crisis & the 2015 E. coli outbreak). The company adapted spectacularly in light of the pandemic by embracing all things digital while dine-ins shut down.

What Happened?: Chipotle beat estimates with revenue at $6B, up 7% Y-o-Y, for FY 2020. The online sales skyrocketed 174.1% Y-o-Y to $2.8B, comprising 46% of Chipotle’s annual business. Q4 online sales rose 177.2%. EPS came in at $12.74, up ~1% Y-o-Y.

Some remarkable statistics on how Chipotle’s digital strategy has delivered during the pandemic:

  • Unit volumes were higher than 28% of the USA’s largest chain restaurants
  • Digital business stayed consistently above 40% in any region
  • The company’s digital rewards program has effectively doubled to 20M users in the last year.

Innovations such as ‘Chipotlanes,’ (that’s Chipotle-speak for digital drive-thrus), integration with Facebook’s (FB) Messenger for ordering, ‘Pepper’ the chatbot, as well as ‘Carside Pickup’ (food is delivered conveniently to customers who are parked anywhere near the outlet) – these have caught the imagination of people who were otherwise home-bound during the pandemic.

To the company’s credit, the digital transformation did not come at the cost of employee layoffs. Chipotle was one of the exceptions that added 161 stores in 2020 when everyone else was caught up in the mayhem. The company has cash reserves of $900M and heads into 2021 from a position of strength. It plans to increase spending on ingredients, open 200 more stores and bring the total store count to 3K, and increase advertising.

Chipotle has signaled its commitment to digital expansion. With the pandemic’s trajectory still uncertain with new strains emerging, this strategy has become a gift that keeps on giving.

Market Reaction: CMG closed at $1473.09, up 1.15%; the stock is down 2% in pre-market trading.

Company Snapshot 📈

CMG $1473.09 +16.78 (1.15%)

Analyst Rating (35 Ratings) Buy 54%   Hold 43%   Sell 03%

Newsworthy 📰

Unfriended: Australia won’t change planned content laws despite Facebook block (FB -2.91%)

Payday: Walmart to hike wages for 425,000 workers to average above $15 an hour (WMT +0.49%)

Bit by bit: Bitcoin hits $1 trillion in market value as cryptocurrency surge continues (RIOT 14.99%, MARA +5.59%)

Later Today 🕒

  • Before Market Open: Cooper Tire & Rubber Co. (CTB)
  • After Market Close: Air Lease Corporation Earnings  (AL)
  • After Market Close: RealReal Inc Earnings  (REAL)
  • After Market Close: Agora Inc Earnings (API)

Fun Fact of The Day 🌞

The Moon has moonquakes

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