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Chipotle Unveils Direct Delivery Services, Eyes Sales Growth

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Chipotle Mexican Grill, Inc. (CMG - Free Report) has announced the launch of its direct delivery services that are going to allow its customers to receive personalized choices of Chipotle from the restaurant’s direct app or website. Powered by DoorDash, the service offers one-stop shopping to every customer in the United States. Further, in order to boost customer awareness and loyalty toward the service, Chipotle is providing free delivery on any order of $10 or more for a limited time.

The move underscores the restaurant’s efforts to strengthen its brand by focusing on giveaways, discounts and rewards; launching menu items; operational excellence; and the enhancement of guest experience by retraining workers and technology-driven convenience along with more aggressive brand marketing.

In fact, the company’s new CEO Brian Niccol has successfully shown his expertise in restaurant operations, digital technologies and branding, which have significantly helped Chipotle in first- and second-quarter earnings. Moreover, Chipotle’s shares have gained 59.2% in the past year, outperforming the industry’s collective growth of 6.9%.


Focus on Enhancing Digital Capabilities

The move is in line with Chipotle’s priority toward its e-commerce program, which is expected to drive customer confidence and help in comps growth. The company is aggressively trying to make digital ordering more appealing for customers and more efficient for its restaurants. In this regard, Chipotle has redesigned and simplified its online ordering site, enabled online payment for catering and online meal customizations, and collaborated with several well-known third-party providers for delivery. Till date, delivery is available from 1,700 Chipotle restaurants. The company targeted to reach 2,000 restaurants by the year end.

In the second quarter, the company made new records as digital sales mix was 10.3% of sales and grew 20% year over year. Digital sales grew 33% year over year. Since the rollout of its “Smarter Pickup Times” technology, there has been a significant increase in digital orders and higher guest satisfaction. As the company’s digital orders are made on a second make line, it allows Chipotle to deliver excellent throughput and enhance the experience of customers, who are increasingly shifting to digital ordering.

In 2018, the company plans to accelerate the rollout of the second make lines, which is anticipated to enable a faster and more accurate experience for digital customers, and allow the restaurant crews to support higher sales volumes. So far, it has progressed with digitizing second make lines in roughly 500 restaurants and is aiming to make it 1,000 by the end of 2018. Meanwhile, Chipotle has entered an ordering partnership with Facebook (FB - Free Report) , via which the social networking site’s users can order food from Chipotle, using popular delivery services such as Grubhub and delivery.com, among others.

Overall Top Line to Gain

We believe that with the launch of direct delivery services, the company’s overall top line will gain further. In the first six months of 2018, revenues increased 7.9% year over year. Comps in the same period improved 2.8%, favored by increased average check and 4.5% benefits from menu price increases.

Further, the Zacks Consensus Estimate for revenues in 2018 is pegged at $4.9 billion, reflecting an 8.2% increase from the year-ago level.

Zacks Rank & Stocks to Consider

Chipotle currently carries a Zacks Rank #3 (Hold). Two better-ranked restaurant stocks include BJ’s Restaurants (BJRI - Free Report) and Dine Brands (DIN - Free Report) . While BJ’s Restaurants sports a Zacks Rank #1 (Strong Buy), Dine Brands carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BJ’s Restaurants and Dine Brands’ earnings for 2018 are projected to increase 50.4% and 25.5%, respectively.

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