Chipotle Mexican Grill, Inc. ($CMG)

Good afternoon, everybody. Thank you so much for joining us. My name is Danilo Gargiulo. I'm the senior analyst at Bernstein covering restaurants and food distributors, and I'm delighted that we have again here on stage, Chipotle, with the CEO, Scott Boatwright, first-time CEO here at the SDC. So welcome aboard.

Thank you.

And also, obviously, like Adam Rymer, CFO of Chipotle. Before I start asking a few questions, I want to remind everybody that you can always send questions through the pigeonhole going to piegonhole.at with passcode 2026 SDC. And with that, let me get started. Scott, what are the top three takeaways that you think investors should be remembering at the end of this conference?

I would say probably first and foremost, is that we have redesigned our strategy, and we launched the new Recipe for Growth strategy with 5 core tent poles at late last year that are already starting to show green shoots of recovery for our brand, which I'm really excited about, and this continue to build. And the strategy -- components of the strategy -- components of the strategy will continue to scale and build throughout the year, and we'll ladder to multiple years of growth for us. The second thing I would tell you is we are strengthening our leadership team and bringing in what I believe to be best-in-class leaders across digital and marketing as well as supply chain to really help us do a few things. Number one is really have a sustainable, resilient supply chain that will serve our brand well, as you all know. Our supply chain is very fragile in nature because of its -- how bespoke our supply chain is. And it's a supply chain that has grown with our brand through the years because we source ingredients differently than everyone else. And our animal [indiscernible] practices are very unique to Chipotle. Secondly, I think it's time for us to evolve [indiscernible]. So I think it's a really important moment in time for Chipotle. In general, I think the [indiscernible] grill campaign that we have deployed over the past 8 years has served us quite well. But I think it's just run a bit dry for the consumer, and we need to evolve the brand voice to really communicate to the consumer, why not just how Chipotle is unique and different, but what that means for the consumer. And then in Digital, I think we're just behind. I think we had a really, really strong platform for many, many years. I think it was best-in-class when it launched, launched, 8 years ago now. But I think our competition has gotten better. And so we're rebuilding our digital strategy, rebuilding our digital ecosystem through [indiscernible] who we hired just recently. Fernando Machado, is an award-winning builder of global iconic brands, joined us an official start date was June 1. He's actually in roll. I shared with folks earlier. He's actually cooking chicken in the back of a Chipotle restaurant last week and getting indoctrinated in this brand that he has loved for 20 years. And so, so strategy team, and then the last thing is we're investing. We're investing in this consumer environment, whether that's investing in our people, investing in technology that will help us run more efficient, scalable restaurants over time. And we're quite frankly, investing in the consumer and Adam can speak to what that looks like in just a moment.

Great. So it seems you become a CEO. What has changed inside Chipotle and what has not changed intentionally?

I'll start with what has not changed. Our core belief around how consumers should eat food, and this belief that food has the power to change the world has not changed full stop. And we are still delivering handcrafted culinary experiences across 4,100 restaurants globally that are delivering on this idea of food with integrity in the most meaningful way. And so that hasn't changed. Full stop. What is changing is how we think about the world ahead. How we think about navigating consumer uncertainty, how we think about navigating a forever evolving macro environment [indiscernible] relying on a tried-and-true strategy that you can put in place for 2 to 3 years. I think you have to be very nimble as an organization today to meet the consumer where they are and to change as the rapid consumer environment changes as well.

And so in the past 18 months, we've seen the same-store sales decelerate a little bit for for Chipotle. What do you attribute the same-store sales deceleration from historical highs to...

Yes. So I started seeing the kind of the canary in the coal mine, probably in Q4 of 2024. We saw a really slow decline coming out of Q2 that year. It continued in Q3. I saw further weakness in Q4, albeit still positive. I knew we were going to be in for a fight in 2025 is related to growing transactions in this industry. You had all the big brands were competing on value as a price point. That is not a game we play, nor shall we, we think we charge a very fair price for our value offering. And we don't compete -- at the time, we weren't competing on innovation and the brands that we're winning and that did win in 2025, one on innovation in a meaningful way. If you look across the industry, innovation stepped up, menu innovation stepped up I think 4x to 5x across the industry, we were still relying on a 2-LTO-strategy running repeat LTOs that we had been successful with in the past versus really leaning into innovation in a meaningful way, which we have transition to here in 2026.

And maybe, Adam, that's for you. Like given the macro headwinds that have played a major role in the past 18 months or so, if macro were to continue to weaken from here onward. What are the biggest risks to your model and which levers do you view as most effective in protecting profit without compromising the brand?

Yes. I mean I think the most effective thing that we can do really in any environment as well as one where the macro is deteriorated and is focusing on execution and ability to lead it into our value proposition. And when you add to that what we're doing from a marketing and menu innovation standpoint, how we're leaning in on our rewards program and all the things that are really centered around our Recipe for Growth strategy, I think it's the best approach to take again, in any environment as well as an environment where the macro is deteriorating. When that's happening, consumers are very much looking for the best experience they can have. That's much more discerning with their dollars. So if they come to a Chipotle, we can wow them with hospitality, we can wow them with an amazing value proposition, entice them with menu innovation and some of the other things we're doing, that's always going to be the best defense in a situation like that.

I think it's important to expand, if you will, Adam, on how we're investing margin this year to really drive the consumer experience, whether it's our pricing strategy or how we're investing labor in our restaurants, et cetera.

Yes, it's a great point. So I'll start with pricing. So as we've kind of given pricing in Q1 was somewhere around 0.9%, and that's compared to the industry running closer to 4%. And we're taking small step-ups throughout the year as we look at this really slow and measured approach to pricing. But that's an investment that we're making in our value proposition, especially at a time where consumers are under pressure. And so that's a big one. That's created a margin dislocation, which I'm sure we'll talk about here shortly, but we believe it's the right thing to do. And with the power that we have operating in our own restaurants with our economic model, we have the ability to do that and really think long term about our value proposition around our guests. And then the other component, like Scott mentioned, too, about how we're investing labor into our restaurants. It's coming in a few different ways. I mean, one is the rollout of the high-efficiency equipment package. That has created several hours of efficiency that we could take out of the restaurants, but we've decided to actually leave those in and make further investments around hospitality to ensure that our crew members are reinvesting that at the time that we needed the most. So that's really going to be around that peak lunch and peak dinner to really wow our guests again, create that environment. And then we're looking into some other investments as well. I mean one of them is -- we've got about 25% or so of our restaurants that don't have an Assistant GM. We call it an apprentice. So it's that second salary manager. We're starting to test where if we add that additional restaurant manager into those restaurants, you get that full peak coverage, right? You've got 7 days a week, 2 shifts a day that can be covered by a salaried manager. And we're seeing some nice initial reaction to that, both from a just better KPIs across the board as well as a better guest experience. And so these are some of the areas that we're looking at in terms of not only just investing into the business but investing into the experience.

And naturally all these investments need to generate a return. So can you help us understand what returns are you seeing in the investments that you're making today? Whether it's a test that you're eventually going to be expanding across the system or something that you've already rolled out? What are the proof points, that this is the right decision for Chipotle?

Yes. So I'll use the high-efficiency equipment package as an example. So this really helps us in a bunch of different ways. And we're seeing that it's not only helping us from like a guest satisfaction scores as well as Taste of Food scores because it creates better chicken and better stake off of the dual-side of the plancha, better chip experience, and just wins across the board. It's also allowing us to get our prep test done more efficiently in the morning, which allows our crew members to take their meal breaks, their free Chipotle mea that they get every time that they work a shift and then be back on the line before the crowd gets there so that we can be fully deployed to execute exceptional throughput. All of these things are laddering up to a nice [indiscernible] comps with restaurants that have had the whole package in for about 2 or 3 months, we start to see an inflection point. That in and of itself is giving us a nice return on investment on that cost of about $100,000 or so for a high-efficiency equipment package, retrofit in existing restaurant. And that gives us even more power to really think about investing that labor back into the restaurant, not needing to pull it out to justify the expenses. So those are some of the ideas of the proof points that we're looking at in order to really justify it. That's the right investment to make in the business.

And then the manager investment, it's quite frankly, it's simple, right? You look at the restaurants where we place a second assistant or Apprentice GM as we call them, turnover improves, OSAT improves, throughput improves, sales improve, I mean the investment is clear, right? The reason you can't do all 1,200 tomorrow morning is you don't have 1,200 ready capable apprentices to put in. So you have to build them over time, out of hourly managers I think we've said publicly, 90% of the promotions that happen at Chipotle happen internally. [indiscernible] probably unprecedented in the industry. We promoted 28,000 people last year alone. And so we have to groom that talent internally to solve for our challenging restaurant environment, which is very unique.

And what is the typical lag between the investment that you're making and the outcome in terms of sales outlets? Because you're talking about turnover coming down. Obviously, this doesn't happen overnight after you made the investment. And then from the turnover coming down to the CSAT going up, takes a little bit of a lag. And from the CSAT to comps, it's another lag. So in your experience how many months out are we talking about for that to be translating into comp uplift as well?

Yes, I think it's faster than you would think. I think it's probably 3 to 6 months where you start to see an inflection in the crew morale and crew engagement, which always ladders to a better consumer experience, which drives top line sales. And it's just a function of making the job -- and we're spending a lot of time this year really rightsizing the complexity in the operations today to ensure we deliver a better team member experience. The better team member experience is, the better the consumer expansion will be.

Scott, you were talking about the excitement that you have in new people, reestablishing the foundations, doing some investments into your executive team as well. You made like 3 major hires recently. So I would like to hear for each one of them, if you don't mind, what mandate are you getting? So if you can start maybe with Jason, the new kid, the new COO, if you can help us understand what mandates you're giving him, then moving to Fernando, the new CMO and eventually to [indiscernible] from a digital [indiscernible] at some point?

Yes, sure. So I'm going [indiscernible] my own for about 5 seconds and I'll quickly move to Jason. I ran the brand as Chief Operating Officer for the better part of 8 years and built, but I believe to be a world-class operating model building the best operators in the industry. And I said this before, I think it's worth repeating, running a Chipotle restaurant is very unique. Think you're running a mom-and-pop restaurant, you're using pots, pans knives, cutting boards with fresh bags of onions, fresh boxes of romaine, fresh boxes of peppers. What we do is so unique and special in this industry, which we need to communicate better, we'll get to that point in a moment. It's hard to replicate. And when I stepped out of the job, it took me about 4 months to hire Jason and then it took him about 6 months to get to know the business, to understand, get through training, to meet his team to make his way around the United States, to meet the various operational leaders. And I think we had -- I think we slid backwards a bit in operations. It didn't manifest itself in the KPIs immediately, but I could see slow deterioration in how we're delivering the experience across the business. And so I'll tell you, since then, Jason has arrested the fall, I think he's heading in the right direction. It's his team now. It's his voice, it's his leadership team. He has the right strategies in place, and he's evolved the strategy that I put in place, gosh, 8 years ago on how we grow this brand and scale being how unique the brand is. So Jason's mandate full stop is execution. And so it's delivering on our brand promise and delivering on great experiences, 7 days a week across lunch and dinner, and he's doing a great job. And so great hire, happy about the hire, making a lot of great progress. That was one of the hardest roles to fill because there's no one in the United States today that is operating more than 4,000 restaurants at a time. Everyone has a franchise system. They have franchisees that are managing. No one operates, owns 4,000 restaurants. So they're trying to find Jason, is like trying to find Unicorn. And so -- but I think we found the right person, he's the right leader it just took them a couple of minutes to get into the role and get comfortable. With Fernando, I was looking for was a pivot on the brand voice. I needed I think we needed to evolve our brand messaging. I think the [indiscernible] campaign, I think I said it earlier, had served us quite well, but it become wallpaper. And so meaning the person that sees that ad sees very similar ad that they saw last year. Maybe it can tell them to spend dollars at Chipotle, maybe it didn't. And I knew we needed to be more competitive in this competitive environment we're operating in, be more nimble, be more innovative as it relates to menu acceleration, and then lean into the consumer in the most meaningful way, whether that's -- I think we've talked forever about being a lifestyle brand where we show up in entertainment, we show up in fashion, we show up in sports, which is all well and good. But we used to lead culture at Chipotle Mexican Grill. Now I feel like we follow culture ever since kind of the COVID era put us on our back foot. And what Fernando will do pretty clearly in short order is get us back to leading culture across the industry again.

What about [ Arley ]?

[ Arley ] brings such deep experience in digital commerce from SPG to Marriott to Hyatt. She's led the Hyatt digital ecosystem for the past 4 years. 65 million users on the platform, and she really knows how to broaden and strengthen and deepen engagement with the consumers across a big platform and create experiences that are unique for each user on the platform. I think that's where we fell behind. I think we ran out of ideas. I think our Loyalty Program was good, not great. We needed to improve or increase the top of the funnel. We get more customers into our loyalty program and then create reasons why they should stay in the program and engage with them and probably a more deep way to -- deepen the engagement with the consumer and a more meaningfully than we have historically.

Okay. Let's start on the basics. Can you compose your puts and takes on your long-term same-store sales algorithm? So how much do you expect Chipotle be comping over time in the long term between price, mix and traffic? And what do think is going to be the main driver of traffic in a slowing macro?

Yes. So I would say we've got the initiatives in place to get us back to a mid-single-digit comp over the next several quarters and kind of going into 2027. And when you think about a mid-single-digit comp for us, I would think of the breakout being roughly 2 points of price. It's what we've seen historically, and that's really just to offset the impact of inflation as it has on our margins, that could ebb and flow up or down depending on where inflation is coming in at and how we decide to handle that kind of in different circumstances. Like I mentioned earlier, right now, we're kind of underpricing inflation, but we're making a strategic decision there. And so that's about 2 points of price there. And then from outside of that, it's a combination of transactions and mix. Mix is a tougher one to give a longer-term horizon on. It ebbs and flows with some of the actions that we're taking on our menu right around menu innovation with Sides and Sauces as well as our Protein LTOs depending on where they're priced and how that's comping on a year-over-year basis. But the combination of transactions and mix makes up the rest. So I would think a couple of points, if not more, from there. And so that's really kind of that ideal mid-single-digit comp breakdown.

It is expected not aspirational, right. So I think those three points of the transaction, you get a point out of execution and restaurants through great throughput and better culinary experience, you get a point out of digital, you get a point out of marketing. You layer in any pricing action that you may have, albeit modest. You're back at mid-single digits pretty quickly. And then you layer on growth platforms like the high-efficiency equipment package and/or catering and/or group occasions. And you see this acceleration in the business that is meaningful.

And one of the biggest controversies that we hear sometimes from investors is you've become almost like a victim of your own success with the limited time offers and the idea that Chipotle needs to introduce increasingly more attractive new menu to successfully be lapping very successful platforms that you had before. So what other options do you have at your disposal that will be mitigating maybe a less successful product launch in the future? And what gives you the confidence that next year you'll be able to lap the successes of Honey Chicken and Chicken Al Pastor.

Yes, I've worked in brands that were LTO-heavy and LTO driven. Most brands I've worked in will see some increase of new customers when they launch an LTO and those customers leave until the next LTO comes. With Chipotle, where we have a consumer that tries Chipotle Honey Chicken for the first time, their lifetime value to Chipotle increases over a person that didn't try the meaning the LTO Chipotle is stickier than you would find at a traditional QSR or other brand. And so the reason we went to 4 instead of 2 is simply because we were asking the LTOs to work too hard for too long. They start to decay in months 4 and 5 and your media isn't working as efficiently and you just make your restaurant operations more challenging without the upside. Typically, on an LTO life cycle, 90 days is perfect. You have a 30-day awareness period. You have 30 days of really strong momentum. And you have 30 days of continued momentum, but on the decline. And that month 4 and 5, you just get inefficient. And so I think 4 center-of-the-plate innovation, innovative ideas throughout the year on a quarterly basis, tapering innovation on sides, dips and beverage and you get to a meaningful place for the consumer for that customer because I invariably, I meet a parent almost every day of the week where I say, I work at Chipotle and they say my kid eats there 4 times a week. My daughter eats there 3 times a week. Our athletes at school eat there 4 times a week. I want to give them compelling reasons and unique flavor differences and unique flavor profiles that are on brand and on trend to get them to come in more often.

And the average frequency is less than 4 times a week for Chipotle. So what will get the average consumer to be eating more frequently from, say, like once a quarter frequency to a little bit more, call it, like 2x to 3x and beyond?

I think at the end of the day -- at the end of the day, it's about execution, full stop. But if we can give them compelling reasons through LTO innovation, I think that's meaningful and enough, quite frankly. I think we need to be more engaging in our loyalty program. I think it's okay. It's not great. And so we did a problem detection study last year to understand what are the friction points within loyalty today and what does the consumer opt out of our loyalty program. And we know specifically what challenges we need to address there. Some of those you'll see with the new relaunch, the Rewards on Repeat relaunch that's coming here, I think, this week, around Summer of Extras. So you're going to see some different experiences within the app today. I think it's a step in the right direction. I don't think it's a step change. And so the expectation for Arley is how do you create an app that's best-in-class that keeps people inside the funnel and keeps them engaged, identifies when they're at risk or lapsed and brings them back into the funnel in the most meaningful way while driving better in-restaurant loyalty percentages. Today, 20% of our in-restaurant customer is in our loyalty program. We think that number is obviously very weak, and we've got to improve it somehow to really get access to that consumer data, we think, is important and relevant.

And what was the strategic rationale not to be adding a tier system like some of the other peers who have recently relaunched the loyalty program have?

I think the work we did both with our third-party consultant on a definition, App design and App Dev specifically. So tiering only works to a point, but it's not the holy grail. And so the brands that are telling you it's a holy grail, I think differently. I'm not saying they're wrong. I just think about it differently. I think you've got to have engaging onboarding experiences. I think you're going to have customer journeys that are meaningful. I think our customers specifically was looking for flexibility on how they spend their rewards points. Trying to get to 1,200, 1,300, how many points is it to get an Entre now?

Yes, about that.

Which was just too much. So we offered a 50% off of a Barito or a [indiscernible]. I think that's the access our customers are looking for and wanting. And then they want early access to LTO innovation. They want free drops around Cilantro Lime Sauce and just access to the brand.

What was your earning on the launch of the Protein Cup recently. And if you extend that point on to how -- what are the other opportunities that you see or that you're contemplating at least to increase the demand during mid-morning or mid-afternoon going forward?

Yes. So our intent there was really to capitalize on this protein movement that's happening across the country today. And who better to be the leader in protein than the company with the best proteins in the world and the best tasting proteins in the world. And we didn't do anything different. So we've always had a side of protein available or extra protein as we call it. We just put it in a cup and put the price point on it, and it went up -- it went up -- went up 36%. And so it really helped us move the needle on transactions, which is exciting. It just shows the strength and the power of the brand and trying to meet the consumer need state at an approachable price point that gives that -- whether you're a GLP-1 user or just an [indiscernible] user looking to plus up through protein intake, I think it's meaningful.

What else could you be doing from a new occasion standpoint to potentially expand kind of the mid-afternoon, like the the shoulder period where the traffic will be a little bit softer right now? Like is this something that you're going to be leaning on going forward? What is the time line for that?

Yes. So the Chicken Taco across the country today is $3.50. So people don't use Taco at Chipotle. I don't know why. I think it's an incredible product offering, whether it's hard or soft tortillas, our taco offering is next level. The reason I mentioned that is we're going to try a happier hour down in Florida where we offer tacos at $2.50 from 2 to 5 to see if we can grow out the shoulder occasion in a meaningful way with some type of beverage innovation that's on trend, that's on brand. So we'll see. It may work, it may not work, but we will stage gate it, make sure it's right for the consumer, right financially and right right for operations.

Great. Another part where you're under indexing versus your peers is on the group occasions. And you have recently piloted catering in Chicago. You've expanded the program also to Boston. So what are you currently testing before deciding whether you want to expand the program nationwide by the end of the year?

It's a great question. I've been pushing this organization to go faster for a few months now. They keep holding me back. And I think they're probably right to make sure we execute at the right level and make sure it's a great experience for every customer that tries it. We've seen extraordinary success in Chicago by using a platform to help remote the Catering platform, but more importantly, load balance across restaurants, and we're not disruptive to the operator. And so -- and our managers want catering, they've been asking for it for years because it does a couple of things for them. They are bonused on sales performance. So it gives them a nice uplift in total sales for the revenue for the business. But also as the most efficient labor utilization and probably the most margin accretive platform that we have in the business. And so -- our concern is and always has been, can we operate catering at scale. Our competitors are somewhere between 10% and 15% of total sales. Today, we're at 1.5%. I think our food travels better. I think people love the Chipotle experience when it's right from a catering perspective. And we need to make sure we can deliver on the expectations for the consumer, deliver on our brand promise and not fracture lunch and dinner in a Chipotle restaurant. Chicago gave us confidence to expand to Boston, Boston has gone quite well. We're expanding to Phoenix in June. We could see a full system launch sometime in 2027.

When we see like catering, not working in some other concepts, it was sometimes because of operational complexity and maybe sometimes it came at the expense of customer experience because the crew was much focused on the big volumes, leading some bags as you were entering, not acknowledging the customer coming in. And so sometimes the catering does require a slightly different real estate or a slightly different estate or a slightly different kitchen size for that to be fully successful. So given where you are with your current real estate, are you expecting to see some modification for low Catering for the entire Chipotle system? Or are you planning to launch it just a subset of your stores going forward?

Yes, it's a great challenge to solve. So we have obviously different footprints for different restaurants across different geographies. We have some really small restaurants that are probably around 1,600, 1,800 feet. We like 2,400 feet. 500 feet of that is a kitchen engine. The rest of it is consumer areas and capacity for pickup and/or seating. Restaurants that are smaller, we will not likely do Catering in those restaurants, and we'll load balance orders. Most of it's delivery anyway, so it's agnostic for the consumer. -- load balance orders across restaurants with larger footprints. It seems to be working really well.

The other element on the Group Occasion is you Build Your Own Chipotle, and you were testing a different sharper price point. So what is the early learning from that test? What is the elasticity of demand for consumers on the responsiveness for you to lower the prices across the board?

Yes. So we did -- I think we're generating about 1% lift on Build Your Own Chipotle, is that right?

Yes, just under 1%.

I think awareness is still low. I think we've been too clever and too pitchy with the name. People see it in the ad, as Build Your Own Chipotle so they go in and start building, trying to build a Barito. They really don't know what it is. I'd contested from day 1, it should be called Family Meals, but we had to get really clever about it. So we call it Build Your Own Chipotle. We just tested calling it family meals in 2 markets, [indiscernible]. And so I'm a genius, they were wrong. I think building awareness on what it actually is for groups of 4 to 6 people. Originally when we launched it, there was a $10 off your first order. And we saw a really good pickup at that $50 price point. It was originally priced, I think, at $58. $50 really moves the needle. It's still margin accretive. It's proven to be highly incremental. And so we feel comfortable getting a sharper price point, naming it correctly and really promoting it effectively through social channels and digitally that it will have a meaningful uplift on the business.

And then finally, maybe Adam the other unlock from a traffic standpoint, you mentioned like high efficiency equipment package eventually adding some traffic. How is the program set so far? What are the most important KPIs that you are -- that you're seeing today? And what kind of compute are you expecting from the full rollout [indiscernible]?

Yes. So there are several KPIs that are leading to a nice comp lift in that 400 basis point range. And some of them are as simple as guest satisfaction scores and taste of food scores, it's the food coming off of the dual side of plancha and some of the other items just that much better and our guests are realizing it. So that's lifting our sales plus the efficiencies that it's creating in morning, especially around the produce slice, the 3 pan rice cooker as well as the dual [indiscernible] frier, those are allowing our crews to more likely get all of their test done at a much more efficient pace so they can take their brakes and then be fully deployed at lunch, and that's allowing us to be stronger at throughput and increase not only our execution and throughput in terms of making sure that we have an excellent place in the line back in place, but also increasing our MAX 15 in those restaurants. And so all of that is laddering to better guest experience, a better crew experience, which is coming through in sales. Like I said earlier, a couple of hundred basis points and really excited to see this continue to roll out throughout the country because we believe it's a huge unlock. And I don't want to -- have to emphasize again the crew experience with it as well. It takes about 30 days or so for them to get proficient with the new equipment. And another 30 or 60 days, like Scott mentioned earlier, to kind of start to see that inflection point. But what we're hearing from our leaders in these restaurants is that it's much easier to train someone and get them proficient at a most difficult position in our restaurants which is grill. Having that dual sided plancha has been a huge unlock there. And so it's been really exciting to see and we're excited to roll out. I believe we're going to hit around 2,000 restaurants or so by the end of this year and hopefully get to the whole system in '27 or early '28.

Great. There's also a thesis out there that maybe Chipotle is trying really hard, maybe doing a little bit too much and results are not showing up in a sharp inflection in same-store sales. So how do you respond to investors who are worried about prioritization. Maybe can you share the time line on when these opportunities are going to be restored in the mid-single-digit growth in a comp standpoint?

Yes. I'll start and I'll flip the conversation with Adam. We've always done a lot. And so this is new. We are always trying and testing and trying to prove out new ideas, innovation on the digital platform, innovation and marketing, innovation and LTO and our strategy around LTOs. We're just being more transparent about it so people understand because of what's happened in the business over the last 12 months, I just want to make sure everyone understands that we're not sitting idly by and hoping the world makes a shift. We will control the narrative. We will win in any macro environment, and we're proving that this year. And then you add a little bit of tailwind to consumer sentiment. And if you look at restaurant performance transactions, the consumer sentiment, the correlation is incredibly tight. And so right now, the world is suffering from -- the industry is suffering from a declining consumer backdrop who thinks food of home has just gotten too expensive. And their pocket books are being taxed. And so they're choosing different avenues on how they feed their families or feed themselves individually. And so I think things need to correct themselves. You're starting to see food at home starting to increase in inflation and starting to see restaurant inflation normalize. And I think that's a really important inflection point for the industry at large. We will -- again, we will win to get back to mid-single-digit growth, but you have a little bit of tailwind from the consumer, and it's game on.

Yes. And we really saw an inflection point as you saw, too, from Q4 to Q1. In Q1, we returned to positive transactions, and that was despite the huge winter storm that closed roughly half of our restaurants for several days, which caused about a 100 basis point impact in the quarter. So with that on there too transactions would have been even more positive. And so as you look at this Recipe for Growth strategy, these initiatives and how we've layered them on, whether it's menu innovation, whether it's the rollout high-efficiency equipment package, catering, you can start to see how these layers build to return us to that mid-single-digit comp, in out-quarters. And so you'll see that continue to build throughout the year. .

It was weather and investing in our pricing strategy.

Absolutely.

And talking about operations, you recently launched a mystery shopping analysis to identify what items are slipping a little bit from an operational consistency standpoint. So what are the early learnings that you have so far -- and what are the initiatives that you are starting to put in place for that to be course-corrected?

Yes. So I will tell you in full transparency, we lost access to the consumer feedback for the in-restaurant experience. And so we used to have a survey program, I thought, it was pointless. We were spending millions of dollars on the program with a customer. We take the receipt receive, they call a survey. They give a rating on, if they had a bad experience, they'd tell you why they had a bad experience. We were getting all that information through our digital properties and our online customer, which we felt was a good proxy for it. And we felt like we've gotten to a point with OSAT, which was best in the industry, but really wasn't moving materially. And so I pulled the program. What I failed to realize, and this is a bit of a [indiscernible] is how it held our restaurant teams accountable to ensuring that in-restaurant consumer was having a good experience. And so what the mystery shopper program will do will help us bring back that accountability for the GM to ensure they're giving consistently great experiences and are aware of what's going on in the dining room, the drink station and restrooms and the hospitality of the team. We've leaned into both of those things this year. We've made a lot of great progress. We put in what we call 3 and 3, every 15 minutes where someone is dedicated to dining room. Every 15 minutes, they're going out, touching the 3 areas, spending 3 minutes, cleaning those up and getting back to the line for throughput, having a meaningful impact. When we put in Tractor Beverage, we inadvertently took out the waste container at the drink station because it now sits over the top of what once was a waste receptacle. So now if you're a Chipotle customer, I'm sure you have experienced this. I'm sure -- hopefully, you've been in a Chipotle restaurant, and you go get your straw and you pull the wrapper off and you hold in your hand, you go, what do I do with this? And guess what they do? They throw it right on the counter. And I don't blame the customer. I would do the same thing, right? Probably not. But I get the point. And so we've got to put those receptacles back in place to make sure our drink stations are tidy through lunch. We got to make sure the 3 and 3 is working correctly. And we launched a hospitality campaign back in March at our All Manager Conference. We had 6,000 people in Las Vegas. We talked about hospitality. We brought in [indiscernible] -- if you'll know Will, he wrote a book called Unreasonable Hospitality, to speak to the team about how do we get back to this culture of great hospitality. We're giving assets back to the general manager so they can do recovery in restaurant real time, which we've stripped out under the last marketing initiative. And so -- or Surprise and Delight moments where the manager just has a pocket full of free chips and Baritos and chips [indiscernible] for a customer that's been in 3 times this week. Hey on your next visit, have some chips and [indiscernible] on me. And so there's little touch points. It seems small that ladder to the overall experience that are critically important for the guests, and we're getting back to that in short order.

Chipotle always been known for strong ownership culture among managers across the company, promoting from within. How is the turnover of tenured regional managers said and maybe other mid-level leaders -- and this is turnover, so it could be the leading indicator of comps eventually, but a leading indicator of turnover might be the satisfaction level. So if you're measuring the satisfaction from your own teams internally? How is that changing over time for Chipotle?

Yes, it's a great question. We saw a small tick up in crude turnover last year. That was largely due to the sales deceleration. Our labor algorithm is built on a fixed component to open the restaurant and a variable component based on sales. So think sales per man hour, if you will. And so when sales fall, hours available fall, availability for team members fall. So we had some attrition on the periphery that caused crew turnover to push up albeit still under performing, are better than industry. What I'm most proud of is this year, it's rightsized. It's back to historical lows and that GM turnover specifically is the lowest, I've seen in my 10 years with the brand. Engagement scores, we ran our crew engagement survey just 6 months ago, 8 months ago, with high marks on engagement, company, I mean its through the roof. If you were in attendance at our All Manager Conference back in March, I said this to a couple of people earlier, the energy, the excitement, the enthusiasm, how people are engaged with this brand and cultural moments where I had a general manager on stage talking about how she moved here from Mexico, she bought her first home with our Chipotle stock. She's now sent her daughter through college and moved the entire room to tears, just tells me culturally, we're in the right place. We're in the right place. Our people are engaged. They're all in. They believe in this brand as much as they ever have. And for us to have such low turnover numbers is to be a high-growth brand, I think, is next level. I think there's no one else doing what we do.

You need to be reinvesting in the business with incremental labor investments in the next few years for you to maintain this level of customers engagement from your employees? Or do you think that the investment level you have today in the stores is enough. In other words, are the stores properly staffed right now to allow for this turnover to be low?

Yes. We think they are properly staffed right now, especially with the investment that we're making in hours through the high-efficiency equipment package. But there's still opportunities that come up like the apprentice one that we talked about earlier are adding that Assistant General Manager into roughly the 25%, 30% of restaurants that don't currently have one because they don't qualify from a sales perspective. And so we'll continue to look for those opportunities. And really if there is a good reason from a transaction building initiative from an ability to create better experiences for our guests, for our crew members, and it's a responsible way of going about it. We'll absolutely look for those investments and continue to make them along the way. So I'm proud to say that we've made several over the last couple of years, and we'll continue to look.

How do you expect the margin profile for Chipotle to be evolving from today's level to 2029, 2030, like how is the progression of margin going to be changing over time. Historically, you were talking, you were reaching 27% talking about potentially reaching 30% given where you are in your stage of maturity to still believe that this is the right algorithm that we should be thinking about? Or are you more in the [indiscernible] we should be considering more investments in the business, therefore, 25% to 26% is it's a good rule of thumb for this business?

Yes. So our current margin profile is under pressure because of the price that we're taking is very much under inflation that we're running right now. For example, in Q1, we took about 90 basis points of price, and our inflation was actually over about 3%. And so that creates a couple of hundred basis points of margin dislocation on a year-over-year basis. Similar numbers for Q2. Price is stepping up to about 1.5%, but inflation is also stepping up due to some things with avocados as well as dairy that we expect those to pick up a little bit as well as beef. And so right now, there's that dislocation. But as we continue this slow and measured approach to pricing, we expect to be able to correct that dislocation over time. And then once we get to that point, you're back to that kind of mid-20% range, call it, 25% or so margins roughly at the that volume that we're at now, especially when you take out some of the other transitory things that we're seeing right now around freight and utilities and some other items. But from there, that's at a roughly $3.0 million, $3.1 million AUV as we continue to march AUVs north through the initiatives that we have in place over the next many years, we expect our margins to grow as well. And it kind of goes back to that algorithm of our mid-single-digit comp breakdown. If you're getting a couple of points of price to offset inflation you're not growing margin there. Where you're growing on those incremental transactions. And you could get transactions of 2% or 3% each year. You're flowing through those additional transactions at about 40%. With that said, we're not [indiscernible] in the sense that if there are opportunities to invest in the business, invest in labor, like we just talked about, we'll absolutely take an approach and communicate that effectively and kind of really see where it is that we believe that is the right thing to do or where we're going to get the returns from that. But with all that said, you can start to play with the math and as you march north of $3 million in AUVs towards $4 million, those margins should go from that mid-20% range to approaching 30%. So I believe that margin algorithm is still very much intact.

You're currently growing the stores at about 8% to 10% per year. So what gives you the confidence that the unit growth is still sustainable even with more compressed same-store sales growth? And how should investors think about the theoretical maximum number of stores that you can be opening on an absolute basis on an annual basis, Scott?

Yes. So this -- last year, we built 334 new restaurants in North America. This year, we'll build 350. And we had line of sight on -- so the trajectory for a new restaurant is probably 21 months out today. And so when you're building that pipeline, as you can imagine, the pipeline is fully built for 2027. And so we were marching towards 375, 400 number. I stalled the organization, and I said, "I like 350, let's just stay at 350. I don't know why the world is in such a rush for me to get to 7,000 restaurants. I'm not that big a rush. And if we can show sustainable durable returns, 350 restaurants a year, which we are, I think it's the right spot for our organization. Right now, we're still seeing 60% year 2 ROI on the investment. We're still seeing 80% of productivity for new restaurants, and we're still seeing about 1% cannibalization, which has been consistent for the last 10 years. And so if something fractures there that will cause us to pause or pull back. But even if I turned it off tomorrow, I'm still going to build 350 restaurants this year. I'm still going to build 350 restaurants in 2027. Those deals are already signed and in flight. And so I'm sure they're dead deal cost, we could probably absorb as an organization. I don't see a need to do that today.

What about the remodeling of your own stores? Do you think that the layout and the format of the stores is conducive to the customer experience that we are seeing today or the customer occasions that you're aiming to drive going forward? Or are you expecting the next 3 to 5 years to see a remodeling cycle to shift a little bit the interior design of your stores?

Yes. So we have not had a remodel program at Chipotle Mexican Grill in 33 years. So as you can imagine, we have some assets that are very old at this point, approaching 30 years or 30 plus. And so I've asked the team to go back and let's take a hard look at different levels of investment on a remodel to see what the returns will be. We have a test this summer with 20 restaurants across 3 different DMAs, where we're going to test varying levels of expense to see what the return will be and provide those tests go well, whichever one wins the day, we'll inform a remodel strategy going forward. But I think there's probably 1,000 to 1,500 restaurants today, they're just dated. They're dated. If you remember, when I joined the brand in 2017 we were -- our brands -- our assets were in distress. I mean we had broken tile, busted white leather, torn booths, and you name the gamut of problems. Our buildings were really dark red on the interior, I don't know if you remember those days. And we used an [indiscernible] lamp that was really, really low light in the restaurant. And one of the first things I did is I cleaned all those problems. I remember asking the Board for $50 million to go fix and we only have 1,900 restaurants at that time. And $50 million, just to go fix some of the deferred maintenance out in the system, while I was doing that, I painted all the walls white, and I re-lamped every restaurant with a really bright bulb just to brighten up the asset and make it look approachable and a place you'd want to sit and have a meal. I think that worked well for about 10 years. And I think we've gotten to a point now where some of our assets, no matter how much we reinvest in maintenance costs or maintenance capital, just need a facelift, right? There's a proliferation of competition. I think some really cool concepts out there that are are having a meaningful impact on consumer experiences. Our new habanero prototype. I don't know if you've seen that, I think you can see it online, someone said they saw it earlier. It's such a modern forward-looking design of Chipotle, it's such a stark contrast to the legacy restaurants that were the old tent trim with the [indiscernible] seats and the mushroom tops that I think there's an opportunity there. And I'm hopeful that the test will work because I'd like to pull together a remodel strategy to address those older assets.

And we are roughly speaking, the 3 levels of investment that you're looking to make? I know it's early days, but what is the rough quantum that we are talking about here?

Call it $200,000, $400,000, $600,000 from interior design, exterior design and kitchen -- it's been a long day, kitchen efficiency to make sure we're delivering the best experience.

Great. And then in the final 2 minutes that we have, there is also increasing questions that we are receiving from investors regarding the state of competition. And specifically, how have [indiscernible] standing fast casual competitors affected competition for talent and real estate?

We took a hard look at [indiscernible] specifically growing aggressively in New York and Florida, and we did a pretty comprehensive deep dive analysis to understand the competitive intrusion. And while we saw some marginal sales pressure within the first 6 months, it recovered very quickly. And what ended up happening is those Cabo restaurants are bringing more consumers to that trade area, and they're making a choice about [indiscernible] and Chipotle. And what we're seeing is they're choosing Chipotle. I think there's two reasons. I think our food is better. I'll put our food up against anybody in the world, but I think we're much faster, and we deliver a quicker experience, which is probably one of the Achilles heels of that brand. I think they're doing fantastic work. Don't misunderstand my comments. I think it's a great brand. I think they're really doing some really cool things. But I just -- when I think about competition, I will build almost the same number of restaurants they have in total just this year. And so if you think about the size and scale and the growth trajectory of Chipotle, I really don't see competition standing in the way. As it relates to talent, we've lost 2 people in the organization to really key C-level roles that were VPs that moved to C-level roles and which we applaud. I never said you had to start at Chipotle and grow here and stay here. I have always said, come to us, grow here, you can go anywhere. And so if we can help people achieve their career goals, we'll always support that in a meaningful way and make sure people are taking advantage of the best opportunities for them and their families. Full stop. We're an incubator for great talent. We're -- it's something we're, we hang our hat on at the end of the day, whether that's operational talent or talent in the support center. And I think that's important. I think it should be applauded not criticized.

Great. Adam what kind of comp progression are you expecting this year? What are some of the key milestones for you this year? And then as we look for 2027, you're probably going to have some tougher lapping from this year given the launch of the 4 LTO instead of 2 LTOs, the deeps and sauces the caring that is progressing as well as the launch of the relaunch of the loyalty program. So how are you thinking about the building blocks for 2027? How do we make sure that there is a successful "lapping" in 2027?

Yes. I mean I think it really is the build. I think the momentum builds with a lot of these initiatives. I mean, when you go to the LTO strategy, it's bringing new guests into the funnel, and they come back again and again once they're introduced to Chipotle. And so there's a building mechanism of your LTO strategy. And then you get into the rollout of the high-efficiency equipment package starting to really speed up the catering rollout. These are all initiatives that are meant to build that comp profile throughout this year, and that gives you a head start going into 2027, and you're still rolling out the high-efficiency equipment package. You're coming up with new exciting enticing menu innovation. We've got Fernando coming in and starting to by that point, having a real grip and change in our brand messaging. So I just look at it as a continuous build to get us back to that mid-single-digit ultimate goal and keep us there moving forward, if not greater.

And mentioned, a meaningful growth in the digital commerce engine.

So Scott to wrap up. How will Chipotle be different 5 years from now? And what is the hardest choice that you think you'll be making in the next 5 years?

Great question. It has been my intent and my endeavor to keep the brand consistent. And I think the brand is beautifully simple in nature, very hard to execute. And I think that's what created this competitive moat that we have around the business that's hard to replicate. So I think it's important to us as leaders and stewards or shepherds of the brand to always keep front and center, what is pure and beautiful about this brand and keep it just that way. Whether that's supply chain, how we deliver the experience in restaurant, I think that's most critical. So I don't think the brand changes I think it evolves from an asset perspective, I think it needs to evolve. I think new [indiscernible] design is probably the way of the future. And then I think we prove and which we're already on track to do that, it is a iconic global brand, not just a U.S. brand. And we're proving that in the Middle East. We're proving that now finally in Western Europe. We'll open Mexico this year. We'll open Seoul South Korea this year. Singapore will be a fast follow I've been to these markets. I've talked to the people in these markets. They are clamoring to get Chipotle Mexican Grill. And so I think you'll start to see this brand really take root and we will solve for food challenges, around the globe in the most meaningful way in proving yet again that people should have access to wholesome nutritious food regardless of your income level or your lifestyle, right? And we're proving you can do just that at a great price point.

Scott, Adam, thank you so much for joining today, and thank you, everybody.