Chipotle Mexican Grill (CMG, Financial)
Chipotle's outstanding performance this year has been driven by its successful business transformation led by CEO Brian Niccol and his team, who have made Chipotle one of the best performing restaurant brands globally, with 52% year-to-date stock price appreciation. Digital access has been a pillar of management's strategy, fueling double-digit same-store sales growth in 2019, and enabling the brand to return to growth only three months after the onset of Covid-19 in the U.S.
Following a very strong start to the year, with same-store sales up 12% to 13% in January and February, Chipotle's same-store sales bottomed at negative 35% in late March, as states implemented stay-at-home orders and dining room closures. Management quickly responded by reallocating marketing dollars and refocusing the organization on digital pickup and delivery.
Management's rapid response has caused the company's digital sales mix to increase from just under 20% of sales at the end of 2019, to a peak of 70% of sales in April, moderating to nearly 50% of sales in July, as states have reopened. These digital sales gains have proved to be resilient, with Chipotle retaining 70% to 80% of digital sales gains while recovering 40% to 50% of in-store sales as of July. The combination of triple-digit digital sales growth and a gradual recovery of in-store sales has enabled Chipotle to return to mid-single-digit, positive same-store-sales growth in July, an exceptional result in the current environment for a brand that did not previously derive a majority of sales from drive-thru or delivery.
Management is confident that Chipotle will emerge even stronger once the Covid-19 crisis is over. Unit growth should accelerate in 2021 as competition for high-quality locations has decreased, with Chipotlanes, the company's high-return, digital drive-thru format incorporated into most new restaurants going forward. Management has reiterated its medium-term goals of: (1) $2.5 million in average restaurant sales, up from $2.2 million today, (2) corresponding restaurant-level margins of 25%, and (3) a long-term goal of more than doubling the current number of Chipotle restaurants in the U.S. The key levers to achieve this growth are already in place including digital access initiatives, the Chipotle Rewards loyalty program – which has become a highly effective tool for personalized marketing that has seen enrollment grow 75% this year to nearly 15 million members – and a robust menu innovation pipeline, with popular new items in trial including cauliflower rice and quesadillas.
From Bill Ackman (Trades, Portfolio)'s Pershing Square 2020 semiannual shareholder letter.
