Good morning.
Chipotle Mexican Grill, Inc. reached a milestone this month.
The fast-casual restaurant founded by Steve Ells opened its doors 30 years ago on July 13, 1993, on Evans Avenue in Denver, Colo. Chipotle CFO Jack Hartung wasn’t there yet as he joined in 2002. But Hartung vividly remembers his first impression of the company.
“I’d be lying if I said I knew that we'd be exactly where we are today,” Hartung tells me. “But I was bullish when I joined Chipotle. It kind of blew my mind that you've got a young chef, who started this fast-casual restaurant company based on what fine dining restaurants do.” For example, lots of prep work with fresh ingredients that's done hours before the restaurant ever opens, he says.
When tasting a Chipotle burrito for the first time, he savored the ingredients, like rice. “I used to think rice was kind of bland and didn’t have much flavor,” Hartung says. “But not if you make it right. If you cook it where it’s not too starchy, not too sticky, you season it correctly with the right amount of citrus and cilantro, it’s delicious.”
Now Hartung, and his strategic partner, Chipotle CEO Brian Niccol, are steering the direction of 3,000 restaurants, with the goal of adding 7,000 units across North America. And that includes navigating the company through an uncertain economy.
Food spend and a heat wave
I sat down with Hartung following Chipotle’s Q2 2023 earnings call on Wednesday. He says the company’s sales will be in the $10 billion range this year.
“We'll spend $3 billion on food this year,” Hartung says. Chipotle tends to not look to food to save money or to cut costs, he explains. “One thing we won’t do is say, ‘I wonder if we can buy cheaper chicken?’ he says. “We tend to invest in higher quality food that's better tasting, better for the animals, the environment, and better for the health of our consumers.”
Areas where he does cut costs? In logistics, like getting food from the small, organic farms or distribution centers to restaurants, for example, Hartung says. “We'll also look at diversifying suppliers to make sure we’re getting scale plus efficiency.”
But with the heatwave in the U.S. this summer, does he expect Chipotle’s food spend to increase? “From an ingredient standpoint, we don't know where or when the climate challenges are going to be and sometimes, it's storms in a certain area of the country or extreme heat,” Hartung explains. “We’ll continue to closely monitor our ingredient availability and cost and diversify our supply chain as appropriate when supply is challenged.”
Chipotle’s partners know that they can “confidently invest” in their business long term because of “our strong and growing demand,” he says. Whether it's to expand capacity or to bring along new technology so they can best deal with some of the weather-related challenges, he says.
Hartung also says Chipotle will be spending $2.5 billion on the company’s people at the restaurant level—in salaries, bonuses, and benefits. “Over the last few years our effective average hourly rate is now $17,” he says. Five years ago, it was more like $10 or $11, Hartung says. “What we will do is make sure we invest in our people,” he says.
Taking a look at Chipotle’s Q2 earnings, revenue increased 13.6% to $2.5 billion, but slightly less than the $2.53 billion expected. The increase in total revenue was driven by a 7.4% increase in comparable restaurant sales and 47 new restaurant openings, according to Chipotle.
In-restaurant sales increased by 15.8%, compared to the same time last year. And net income was $341.8 million, up from $259.9 million. Coming into the report, shares were up about 50% year to date. But after a slight miss on the top line, shares dropped 9.8%.
Chipotle has taken “zero price increases this year," Hartung says. The last national price increase was in early August 2022, he says. And then a targeted one in about 700 restaurants. But inflation could still have an affect on pricing, he says.
Hartung also tells me that Chipotle’s “Autocado,” a robot designed to perform tedious tasks like peeling, cutting, and can also core avocados for guacamole, is still a prototype. “It still needs a few more iterations,” he says. But you still need a human touch to mash the avocado, Hartung says. “That's where it turns into delicious guacamole,” he says.
Another ingredient that stands out to him.
Have a good weekend.
Sheryl Estrada
sheryl.estrada@fortune.com
