COVID-19 Impact on Restaurants and Chipotle
Most restaurants have suffered significantly during the COVID-19 pandemic due to their inability to serve customers in person and have had to quickly shift their business models in order to provide meals in different ways. The National Restaurant Association expects a $225B economic impact over the next three months, with 5 to 7 million jobs lost . It is currently considered successful for restaurants to just break even and some have survived by creating limited menus with socially distanced pick-up, while others have developed meal kits for customers to cook at home.
Like its competitors, Chipotle has been forced to quickly evolve in order to serve customers in a coronavirus world. After Chipotle shut down its dining rooms to contain the spread of COVID-19, the company acted quickly to increase its investments in digital and delivery services. Chipotle announced free delivery for orders made through the Chipotle app from March 15 through May, shifted marketing from live sports to online and streaming platforms (including TikTok), signed a national delivery partnership with Uber Eats, and even partnered with YouGov to study how Americans’ lifestyles have shifted during the time social distancing in order to develop new menus . While many restaurants are struggling to survive, Chipotle’s digital investments have paid off as it reported net sales increases of 7.8% in Q1 2020, same-store sales increases of 3.3%, and digital sales growth of 81% (representing 26% of sales) . In March alone, digital sales grew a shocking 103% year over year and represented 38% of sales.
Chipotle’s Pre-COVID Digital Business Investment
After suffering from multiple outbreaks of foodborne illness in 2015 and 2017, Chipotle brought on former Taco Bell CEO Brian Niccol in March 2018. Brian Niccol expanded investment in Chipotle’s digital business, including enhancements to the Chipotle app and Chipotle.com, a digital rewards program, and new restaurant designs to better support digital business. Chipotle partnered with DoorDash and Postmates and fully embraced the digital food delivery model. Chipotle introduced walk-up windows (see image below) and pick-up portals for delivery drivers and customers ordering on the Chipotle app to simplify the pick-up process and even introduced “Chipotlanes”, which are drive-thru lanes for customers to quickly pick up their online orders without getting out of the car (see image below) . These investments paid off, as Chipotle announced digital sales growth of 78% (accounting for 20% of sales) in Q4 2019 .
Chipotle’s COVID-19 Digital Response
Chipotle continued to build on its successful digital strategy and immediately responded to COVID-19 by increasing investment in digital. This move to increase investment was unique given the crunch on the restaurant industry but paid off in Chipotle’s Q1 2020 results. Chipotle’s response to COVID-19 included the following:
- Free delivery and digital rewards: Chipotle announced free, contactless delivery through May. Chipotle’s Delivery Kitchen concepts (which it had invested in pre-COVID) are used to serve digital orders, allowing customers to pick up their mobile orders without leaving their cars. Furthermore, Chipotle has expanded its Chipotle Rewards for customers to gain points to get free meals .
- Uber Eats partnership: Chipotle announced a national delivery partnership with Uber Eats on March 18, waiving delivery fees on any order of $10 or more on the Uber Eats app through May . This partnership fits in seamlessly with Chipotle’s existing digital business model that makes it easy for delivery drivers to quickly pick up orders.
- Increased media spend on online platforms: Chipotle shifted its traditional media spend in live sports to online competitions for esports fans with the 2020 Virtual Challenger Series in which fans can engaged with celebrities and can win free Chipotle for a year . Chipotle also created a TikTok challenge called #ChipotleSponsorMe with TikTok stars in which fans can win a Chipotle Celebrity Card . As customers shift toward increased online media consumption during COVID-19, Chipotle has shifted its marketing to match.
- Lifestyle study and healthy offerings: Chipotle and YouGov performed a study on how social distancing has impacted lifestyles. The study found that 35% of Americans are struggling to maintain healthy lifestyles, 44% are not maintaining a regular workout schedule, and 36% are eating more junk food . Chipotle partnered with wellness influencers to address this problem by offering Lifestyle Bowls, healthy options for Americans spending more time at home.
- Healthcare worker support: Chipotle announced an egift card program to support healthcare workers, in which it matches 10% of purchases to donate to organizations supporting healthcare workers. Chipotle also announced a “4HEROES” program to donate a burrito to healthcare workers when customers enter “4HEROES” on the Chipotle app .
Is Chipotle’s Digital Growth from COVID-19 Sustainable?
Clearly, Chipotle has taken a multitude of actions to quickly respond to COVID-19 in new digital ways to meet the needs of its customers and to support healthcare workers. While Chipotle had already established a digital business model prior to COVID-19, it has continued to invest heavily in digital to respond to COVID-19 in ways that support its existing digital business model. I view Chipotle’s digital business model to be sustainable and it will see continued return from its expansion of digital initiatives. It should take the following actions to ensure it sustains its digital growth:
- Continue to expand loyalty program, which has seen an increase in registrations during COVID-19, in order to maintain sticky customers (e.g., hold more challenges and events to win points).
- Build new stores with digital customers in mind by expanding and enhancing pick-up windows and drive-thru lanes to make it easier for customers to get food quickly, since digital ordering and food delivery apps will continue to drive growth post-CVOID.
- Maintain focus on healthy menu offerings that were created to address COVID-19 lifestyle changes, since customers are increasingly interested in healthy, fast casual food.
- Keep offering free delivery to continue increasing digital orders post-COVID so that customers continue to see value in ordering delivery rather than cooking at home or going out to eat.