Customer Value Proposition: It Is Not Just About the Burrito
Chipotle Mexican Grill, a popular quick-service restaurant (“QSR”), was founded to “show that food served fast didn’t have to be a “fast-food” experience.” Core to delivering on this customer promise is Chipotle’s speed of service, quality of service and customization (build your own dish).
So how does Chipotle deliver on this? Digital ordering, digital payments and data-driven, technology enhanced operational efficiencies.
Chipotle’s Technology Innovations
The demand for digital ordering is high among Millennials with 39% of consumers already ordering on their phone and 56% wanting to. Chipotle’s digital initiatives to date were plagued by customer complaints of long wait times, the inability to pay through the service and incorrect orders. In an effort to fix this, Chipotle has revamped its app, launched a mobile-optimized website and started installing tablets in its restaurants. They also have incorporated the ability to pay when ordering. Not only does this make the customer experience better, as they do not have to wait in the cash register line, it is also very timely as credit card companies roll out their Chip and Pin technology. This technology is a disruption at checkout that increases throughput time (an issue for Chipotle who promises speed) and therefore Chipotle wants to take payment away from the register.
Previously, Chipotle’s second make-lines to accommodate digital orders were using printed out receipts, with ingredients written in abbreviations, for the server to use to build the burrito. While this may work for a fixed menu, the variability of customized orders was causing mistakes and slowing down operations. Now, Chipotle is utilizing over-head queuing systems that use visual aids to highlight ingredients. Not only has this reduced throughput time and error, the visual aids are so intuitive it will reduce training costs.
Chipotle has also invested in a new POS system that, coupled with the technology in the back-of-the-house, is now able to track demand and supply to accurately predict wait times, an initiative they have labeled Smart Pickup Time, and ultimately deliver on their fast service by minimizing wait times.
A lot of these initiatives are long overdue. A QSR competitor, Panera, launched a similar initiative back in 2014. To remain competitive, they need to continue to look forward.
Near-Term: Integration with Messaging & Audio Platforms
Chipotle needs to make digital ordering even more accessible. Domino’s (a QSR competitor) “Anywhere” initiative empowers customers to order through any preferred medium, even by tweeting a pizza emoji. Two areas of focus should be messenger and audio. As apps flood smartphones, consumers are starting to demand a single interface to access services without having to navigate platforms. This trend is most evident by the race between tech giants to win this interface: Apple’s iMessage, Facebook’s Messenger, Slack and Amazon’s Echo. The rise of the artificial intelligence technology referred to as “bots” allows the consumer to use natural language to ask for something and then, through APIs, the bot is able to communicate with the service. In a race to scale, these platforms have partnered with service companies such as Dominos and Chipotle needs to integrate to continue reaching its customers. This will be critical to reaching full utilization of the second make-line, or 50% of restaurant sales, especially given today digital sales only account for 6%.
Medium-Term: In-House Delivery Capabilities
While Chipotle has launched delivery via third-party services such as Postmates, I think they need to bring this in-house. Not only do you have other QSRs making this investment, you also have entrepreneurs starting technology companies focused on optimizing delivery speed through AI technology and outsourcing the menu creation to famous chefs, i.e. Maple. To me, this suggests the commodization of the meal itself, with the value being how fast you can get it to the consumer. While building out a delivery fleet can be expensive, the emergence of the on-demand economy has created more supply lowering costs. In addition, if drone delivery remains on track for 2020 it could bring the cost down even further.
Long-Term: Robot Labor
A startup Momentum Machines is launching a restaurant concept based on a robot that can make 400 burgers an hour. As this technology becomes more accessible to the market this could increase speed of service and be a big cost savings for Chipotle, particularly on its second-make line, where the human element does not add any customer service enhancement such as helping the customer decide what to put in their burrito bowl.
Chipotle is currently faced with the reality that the QSR space is acting quickly as new competition pours in from Silicon Valley. If Chipotle does not adapt, its delicious burrito will not be enough to deliver customer value any more. Soon a burrito emoji will trigger an order at some restaurant, it’s Chipotle’s job to make sure it is theirs.
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 Chipotle 3rd Quarter Earnings Call
 Chipotle 3rd Quarter Earnings Call