Chipotle Mexican Grill Inc. last April became the most valuable publicly traded company based in Orange County, when its market cap surged past $55 billion.
It’s only gotten bigger since then.
Now sporting a $74 billion market cap (Nasdaq: CMG), after seeing its share price increase nearly 75% over the past 12 months, the fast-casual restaurant chain has come a long way since 2018 when it was worth around $7 billion, and Brian Niccol was hired as chief executive.
The question now is whether Chipotle, which opened a record number of restaurants last year, can maintain its goal of doubling its restaurant count in a few years.
Wall Street thinks so.
“The company has a visible path to comfortably exceeding its stated long-term target of 7,000+ locations,” Baird analyst David Tarantino wrote in a note to investors last month.
Baird’s research suggests that “brand saturation has not yet been reached and signaling that our 8,250+ figure for North America eventually may prove conservative,” he added.
The chain currently counts over 3,400 locations.
Passing $10B
Chipotle reported revenue grew 14% to $9.9 billion in 2023; analysts are expecting another 14% growth this year to $11.2 billion and 13% more growth in 2025 to $12.7 billion.
Despite headwinds such as development delays, wage inflation and higher costs for ingredients, Chipotle’s guidance and expectations remain positive.
Niccol last month admitted the 7,000+ restaurant goal might be on the conservative side.
“At one point, we were talking about having 3,000 [Chipotles] and then we said 4,000 and we said 5,000,” Niccol told analysts on a conference call last month. “Here we are at 7,000.
I hope it does prove to be conservative. I think the brand’s got a lot of upsides in it.”
Not only is Chipotle the most valuable public company in Orange County, but it is also the third most valuable publicly traded restaurant chain in America, only trailing McDonald’s Corp.’s $210 billion (NYSE: MCD) and Starbucks Corp.’s $103 billion (Nasdaq: SBUX).
Chipotle’s market cap is almost twice that of Yum Brands Inc. (NYSE: YUM) where Niccol oversaw its Irvine-based Taco Bell unit; his LinkedIn profile said he coined the chain’s famous “Live Más” slogan.
Speed and Tech
Almost a decade ago, Chipotle amassed negative publicity after a slew of food poisoning cases that resulted in 1,100 people falling sick. That caused sales to drop 13% to $3.9 billion in 2016.
The company paid a $25 million fine, the largest ever in a food safety case.
Then-CEO Steve Ells, who founded the company in 1993, hired Niccol in 2018.
One of Niccol’s first acts was to move Chipotle’s headquarters from Denver to Newport Beach.
“We really wanted to be where the food culture that we wanted to create exists, and then also wanted to have access to the technology talent that we knew we would need to really transform the business,” Niccol told the Business Journal in early 2020, when he was named Businessperson of the Year. The company’s valuation at the time: $24 billion.
In 2019, he introduced a concept that combined technology and speed called Chipotlane, which caters to online customers ordering meals to go. It reported 811 Chipotlanes by the end of last year.
Investors have previously cited digital sales, which now represent 37% of its sales, as a key reason for the stock’s performance.
Also in 2019, Chipotle started a rewards program that awards discounts via a points system and allows easier transactions by saving customers’ prior orders. It now has almost 40 million members.
Niccol described the rewards program as a “powerful tool” that helps upsell products like Mexican Coca-Cola, salsa and guacamole.
“Whether you’re a light, medium, or heavy user, when you’re in the rewards program, you come more frequently and you spend more,” he said.
Chipotle has invested in automation and robotics to improve prep work and in-house operations.
In 2022, it unveiled “Chippy,” a robotic machine to cook and season the restaurant’s tortilla chips. This spring, it plans to test the “Autocado,” which slices and smashes avocados for its guacamole, in one of its restaurants.
“That’s why you continue to see us look at all these robotic ideas to make prep even more efficient,” Niccol told analysts. The company’s Cultivate Center, where it tests out much of its new foods and processes, is in Irvine.
$4M AUV Goal
Chipotle last year opened 271 new restaurants and now has a total of 3,437 locations. The company last year also signed its first international partnership with franchise operator Alshaya Group to drive expansion in Kuwait and Dubai.
Analysts are bullish.
Chipotle “is driving industry leading traffic primarily via improved throughput as demand remains strong across customer income levels, giving us confidence that traffic will continue to grow with strong execution, irrespective of the macro environment,” Truist
Securities analyst Jake Barlett told investors in a report.
In the fourth quarter, Chipotle’s average unit volume (AUV) reached $3 million for the first time. Niccol is aiming to reach $4 million in annual sales per restaurant.
“Our strong economic model gives us a high degree of confidence that our ambitious growth objectives are achievable, if not beatable,” Chief Financial Officer Jack Hartung told analysts.
Chipotle will be announcing its first-quarter results on April 24.
Benefits for Gen Z Employees
California in April is requiring restaurants to pay a minimum wage of $20 an hour.
Chipotle Mexican Grill Inc., which has 15% of its 3,400-plus restaurants in California, is preparing.
“We anticipate wage inflation will tick up to the mid-single-digit range as California wages go up around 20% in April this year,” Chief Financial Officer Jack Hartung told analysts on a February conference call.
Chief Executive Brian Niccol told analysts that he’s witnessing the best stability of employees since he took over in 2018. The company has 115,000 employees.
In 2023, Chipotle promoted more than 24,000 people, with over 90% of all current restaurant management roles internally promoted, according to Niccol.
The company is introducing a new employee assistance program as it looks to hire additional employees for the chain’s busy season between March and May.
Newer benefits such as financial wellness and mental well-being programs have been added to cater to the younger employees coming onboard. More than 73% of Chipotle’s restaurant employees are reported to be Generation Z, which is generally considered those born between 1997 and 2012.
The Chipotle team is also preparing for an increase in other expenses along with the investments in employee benefits.
A Truist Securities analyst is projecting its restaurant costs will rise 12% to 14% in the coming two years, in line with the expected revenue growth.
“We expect our underlying [general and administrative] to be around $127 million in Q1 and step up each quarter as we make investments in people and technology to support our ongoing growth,” Hartung said.
