Chipotle Mexican Grill, Inc. (CMG) Earnings Call Transcript & Summary

Well, good morning and good afternoon. Thanks for hopping back on to this session for the Piper Sandler 41st Consumer Marketplace Conference. I'm Nicole, covering restaurants at Piper. And we've kicked off our restaurant focus this morning with a lot of conversation around people from different angles, from the Chief People Officer in the hiring angle, and from the PE sponsor angle. And there's no one better to do it from a public company perspective than Chipotle. So joining us live from their headquarters in office today is the Chipotle team. So thanks guys for doing this. This is so amazing, to see you. Love it.

And I thought what we would do first, we want to really move forward the most we can, but I thought let's just pause, take one step back to get started and think about a year or so ago and the benefit of maybe what allowed you to be proactive, the way we were thinking of it, not good or bad, but just being company-owned, no distractions, debt-free, no distractions and good standing with landlords, no distractions. Now that you've had some time to look back on it, what would you say?

Well, look, I would say 2 things: first, really proud of the leaders that we have. It validated, I think, the culture that we're building because it's leader-led, the culture that we're building. And when you get under pressure and things are constantly changing, you see the good and the bad out of leaders. And what I think I learned the most is we've got the right people leading our company in the various areas across our company. So the team got stronger, the team got faster. I think the team got more decisive. So I think it made the leaders better and it validated that we've got the right leadership in place. The second thing I would tell you is because we are, fortunately, company-owned, in a very strong position financially, very healthy brands, a company built on values and purpose, it made the decision-making process of investing in our people very easy. And there was never any wavering on that. And so I think that is something that will carry us forward well beyond this decade. It's going to be something -- having the right leaders with the right culture and then having the ability to invest in people, both in good times and in tough times, is invaluable for an organization. Then as you think about the business side, clearly, we know people's desire for food with integrity, customized, great value, great speed, that doesn't change. And we're going to continue to do that. So we were fortunate that we invested in the digital system the way that we did. But I think that's just a testament to looking around the corner to say what we need to do for our business, and we're always going to be looking around the corner to figure out what we're going to do for our business. That's just who we are as a company. So those would be the biggest things, Nicole.

So the things that you were able to do or decided to not to do, didn't have to do, it was a part of the team that you've assembled. And when I think back to when you joined and everyone you brought over, so much happened to disrupt the restaurant industry, shortly after they joined, we've never really got to go back and explore how and why they came to Chipotle and talk about the stories there. So maybe you could just touch on that, the core competencies that came through. What surprised you most about the team that you put together? And I'm sure you learned some new things even about the people that you had known.

Yes. Look, we knew we were building a team that had expertise in big companies, medium-sized companies. It was really on demonstration, right? We -- supply chain is a great example, right? Carlos came in as a new leader of supply chain. Not only did we really have hardly any disruptions in the supply chain but I think we advanced our supply chain. We have now even stronger relationships. I think we're going to be able to move further along on this march towards more access to food with integrity. And it's a testament to having a leader that's got expertise but a leader that was aligned with our principles and values. Never was there a thought to give up on the idea of continuing to source food the way we believe is the right way to source food. Rather, we saw it as an opportunity to be better at it. And then at the same token, because of the relationships and the commitment that we've provided to these suppliers and partners, we figured out how to work together to make sure we didn't really have any major disruptions. And that's just one example. Other areas, obviously, are in development. Tabassum is a woman that's leading our development group. She reports in to Jack. And I think that's a great example of -- Jack's been with the company for almost 20 years. We've got a new person that's got a lot of experience in development at a fast-growing company. And that combination resulted in us never missing a beat on continuing to move forward with our Chipotlane initiative as well as continuing to accelerate our new unit efforts. And I think that's another place where we stood out. And we didn't have any distractions, right? We weren't negotiating with other people to deploy capital on our behalf. We were the ones deciding when and where and how much capital we wanted to deploy because we knew the returns made sense. And I think that, again, goes back to the comments you made earlier. We're all company-owned. We've got a strong balance sheet. It gives you that confidence. And then when you think about folks like Chris and Curt that joined our company, look, Curt was invaluable. His expertise in the digital system and his calmness throughout it all, we were having record levels of sales go through our servers like every day. Every morning, I would ask Curt like, "Well, how is it going to go today?" And he's the guy who had a calm where he was like, "Look, we're building capacity. No issues, we're going to be great." And at the same token, our rewards program goes from 10 million people to 20 million people. So it was just -- and the good news is these guys have had experience at that scale. So to see the scale happening, there was really a whole sense of calm. And like the way that Chris approached, I think our marketing was really smart. The menu innovation was really smart. So look, I can go around the table with every person on our leadership team, Laurie Schalow who is handling all of our communication with our employees. The way that we ramped up our communication with our 100,000 employees, I don't know of many places that could have done, in my experience in the past, as quick as we moved to be able to be as transparent and have open lines of communication with every store-level employee, which proved to be mission-critical because they needed to know that their safety was our top priority, and the ability to keep them receiving paychecks and honoring bonuses that were getting wiped out. That -- I think that's going to be, in the human capital bank account, invaluable. And obviously, of late, you see, we just invested further in wages, which I think is going to be another one of those things that pays out in a big way down the road.

So certainly, the team you brought on, I mean, it's not luck but the vision and the strategy to -- made it cohesive and had moved on that quickly is something that clearly benefited the entire enterprise. Let's talk a little bit about the consumer transition to the consumer as you see them today. The path clearly seems to be for Chipotle, very, very early days, I mean, decades ago of aspiration and inspiration to one that now appeals for the masses. So what would you say drives a Chipotle consumer today?

Look, I think would -- well, this is what we know drives consumers to want to be very much engaged with our brand and being a big fan of the brand. It starts with, obviously, the delicious food and the different approach to ingredients. And then I think what has, I think, broadened our appeal is we're removing any friction and providing more access. So that broadens the appeal. And young people appreciate the purpose, the commitment to food, climate, people, planet, that all matters. And it shows up in, I think, more delicious food for us and for people's communities. And so look that -- at its core, the fact that we have made the brand more accessible with less friction is why you're seeing a broadening of users. But at the end of the day, we've never wavered on what makes our business unique and what is core to our business. And that's what I think makes our business magnetic to customers, and that is the commitment to a different approach to ingredients and we're uncompromising on it. And when you walk into our restaurants, you see great culinary. And it's great to see people walking into our restaurants again. It's nice to see the line again. I love all the gains digitally but I also love seeing lines again back in our restaurants.

And so to the consumer has been a little disrupted, so this is more admittedly more myopic. But has the stimulus even played a role for your customer? And if you might compare and contrast the stimulus last year and things have changed with the stimulus this year, so how do you know if you're renting a guest or they're coming to you permanently to form a new relationship?

Yes. Well, look, what we use as a proxy is fortunately that rewards program, and we now have over 20 million people in it. Obviously, the stimulus, I think, played a role to get people moving back towards spending and getting out and about because it kind of coincided with things easing up as well. So what we've seen is the people that are joining our rewards program, we continue to see a lot of new users coming to the program. We continue to see their frequency increase. So we're using that as a proxy. But of course, stimulus created a tailwind. But the even bigger tailwind, I believe, was the reopening that kind of happened simultaneously. You guys know all the data we have access to, right? Savings have never been higher. The big consumer desire to have reunions and get out and be a consumer again, get on with their daily activities creates occasions where you're going to eat away from home and eat at a restaurant or, at a minimum, get that food from a restaurant and maybe eat it somewhere else. So we're seeing it play out in people behaviors getting back to what they were pre pandemic and then hanging on to behaviors that were created during the pandemic.

In a previous session, someone just made a point that really resonated that the customer just showed up, right? They showed up differently, maybe not at your bricks-and-mortar but in an e-commerce way, maybe not in your store in line but having it delivered or picking it up. And I thought what a great way to think about how the customer still found a way to get to the brands that they're attached to. Your stage gate process has served you well thus far. But in terms of loyalty because it can be so powerful, if you could, what would you push along in that way even faster?

Well, look, we would love to get even more people into the program. One thing I will tell you is we're becoming a lot better at using that data, one, to gain insights on where we need to be better, where we have opportunities but then also the insights to really engage correctly with the various cohorts and the journeys that we're creating. And we're seeing that play out in people's shopping behavior, and we think we're gaining share as a result of it. So our share of stomach or share of meals is the way to describe it. So look, I do believe the focus on the consumer will always serve us well. And we're unrelenting on that front. And we're also unrelenting on trying to find ways to make our employee experience better. If we do both of those things, I believe we'll continue to just have tremendous growth.

Definitely about the -- one more question before we do turn to the employee because I couldn't agree more and try to always understand that relationship as well. How big is the gap, out of curiosity that we all share, as measured by customer lifetime value? So if you have kind of a core average user and then you have now loyal guests that you can measure, is the measuring is -- are you measuring more dollars with the brand or covering more frequently? And again, is it -- is there a really big gap or is it just -- start as a narrow gap that widens as you utilize the data and the relationship?

So look, the -- call it, the once-a-year customer versus the customer that's coming multiple times a week, obviously, there's a big gap there. And so Chipotle is still a relatively new brand in a lot of places where we open our restaurants surprisingly. I know it sounds crazy but we still have a lot of people that are experiencing the brand for the first time. And so that presents a unique opportunity for us to be able to move these new users up that continuum and really convert that value into meaningful value for our company. So that's -- the good news is we only have 2,800 restaurants. The bad news is we only have 2,800 restaurants. So as we continue to build these restaurants, we continue to get people more access, we continue to see -- and that's probably one of the biggest surprises I had coming to the company. Back in 2018, I remember when we even got going hard in digital, I was surprised at the number of new users that were coming into the business through this because initially, I thought, well, this will be something that is really attractive for our existing users, but it just created so much more access. And that app is so easy to use, it got rid of some of the anxiety around even how do you order at Chipotle. So that's been probably -- when people ask me like what's one of the things that surprise you? I was surprised at how new the brand still is to so many people. So it's a tremendous opportunity for us to grow within our 4 walls as well as units.

I'm always surprised by how many fewer units you have than your peers trying to do the same thing with loyalty but the same number of loyalty guests, so I hear you. If you turn to your point now about addressing and meeting the consumer demand that you have, I think it's fairly substantiated with the thought process and the performance. Demand is not your problem. But I imagine it could be a challenge to meet the demand and talking about the employee engagement and talking about labor. We hear everything, there's a spectrum. So how stressed is the situation in the field today?

So look, I think it's one of those moments that probably none of us have really ever seen before on how quickly the consumer demand has shown up, to use your words, Nicole, and then our ability to staff up for that new demand. And it's challenging, no doubt about it. The good news is, I think our company, I can speak to. I can't speak to what we're seeing in other companies. I can only speak to the signs I see hung up at other companies. But in our company, what we know is when we educate people on the purpose, the growth, and then we show up with a compelling starting wage, that leads them to ultimately, a, I would say, a great career wage, meaning you can get to $100,000-plus in really short order a couple of years. That resonates with people. And the fact that we moved our average hourly wage to $15 an hour, that's meaningful. And we've seen a lot of people get excited about, that is a wage to get started with as well as the benefits that come with it and then the opportunity to be a part of a different kind of company that's got a very unique culture. So -- but you got to be sharp. I mean, you got to be on it. You got to be after it. And then you got to also make sure that you're putting your arms around the people that you currently have because you don't want to be losing them either. So we're really focusing on doing both.