buyer's market

Chipotle Wins by Removing ‘Friction’ — That Is, Human Contact — From Your Experience

Just you and your burrito. Photo: Patrick T. Fallon/Bloomberg via Getty Images

Chipotle Mexican Grill is having a great 2019. Its stock was up 92 percent through Monday, before it announced it had beaten analyst expectations by earning $3.47 per share in the third quarter ($3.32 was expected) and growing comparable-store sales by 11 percent compared with last year’s third quarter. The company says its sales were boosted in part because of customer enthusiasm for its temporary offering of carne asada.

And yet, after that announcement of a beat on profits and strong sales growth and delicious skirt steak, Chipotle stock is down 5 percent as of midday Wednesday. Why? Perhaps because Chipotle also announced it’s adding new stores a little more slowly than it previously said it might.

The company has its reasons for slowing down: It’s very excited about its drive-through concept, “Chipotlane,” and wants to add a drive-through to more of its new stores, which means store construction will take a little extra time. The Chipotlane push is part of the company’s broader emphasis on digital sales, in which customers order online and either get their food delivered or come to pick it up. Chipotle says digital sales have nearly doubled from a year ago, now making up 18 percent of sales, with the percentage being even higher at the handful of stores already with Chipotlanes.

Chipotlane is, in fact, a digital-only drive-through. You can’t order at a Chipotlane window; you have to order through the app or web and then drive up to the pickup window at your appointed pickup time. On Tuesday’s earnings call, Bank of America analyst Gregory Frankfurt sounded somewhat confused by the concept.

“I guess, right now, you can only order ahead as you pull up to a Chipotlane,” he said. “What’s the likelihood that you shift this model to more of a traditional drive-through operating structure at some point down the line?”

CEO Brian Niccol responded that while nothing would prevent them from making that shift, they don’t think it’s a good idea. He said customers want to order ahead through an electronic device instead of by speaking to an employee.

“Frankly, I think this is the future of how people will want to interact with restaurant companies, because this is arguably faster than any other way possible to get your food,” he said.

Niccol repeatedly emphasized the company’s focus on eliminating “friction” in the burrito-acquisition process, and “friction” seems to refer mostly to human interaction. The need to wait in line and order from a human being is a friction. If you can order through a smartphone and pick up your burrito pretty much without talking to anyone, that’s a reduction in friction.

“We know that when you can offer Chipotle with less friction, meaning it’s easier to order, it’s easy to stop in and pick up Chipotle without even getting out of your car, that tends to cause our customers to want to get Chipotle even more often,” he said.

Chipotle isn’t the only brand relying on digital in-store pickup to lure customers. (I would note, while only a few dozen Chipotle stores have Chipotlane, they generally offer in-store pickup from a shelf where burritos await.) Personally, I often get lunch by ordering online from Sweetgreen and picking up my salad in-store. This is not the absolute fastest way to get a salad; my local Sweetgreen is very popular, and often, if I’m ordering a little after noon, there might not be any pickup slots available until after 1:30. But working from home for 90 minutes while I wait for my salad entails less friction than waiting in line for 20 minutes at a Sweetgreen store.

Of course, getting your burrito delivered to you entails even less friction than either ordering in-store or ordering online for in-store pickup. Chipotle established a partnership with DoorDash last year, and delivery has been a key driver of the company’s robust digital-sales growth. An increasing emphasis on delivery is a trend throughout the restaurant industry as customers seek to avoid the friction inherent in leaving their homes or offices.

But Chipotle’s delivery push is somewhat dependent on venture-capital investors’ enthusiasm for money-losing delivery companies. Journalist Kevin Roose has noted the apparent waning of “venture-capital funded millennial lifestyle subsidies,” as some firms in VC-dependent sectors have either raised prices or gone out of business in the face of a newfound insistence on profitability. But the decline of the VC subsidy also has business-to-business impacts: If delivery firms raise prices or cut back service, that will have material implications for the ability of companies like Chipotle to depend on delivery as a sales channel.

This is another argument for the importance of Chipotlane. What will we do if delivery stops being so cheap and easy? One possibility is we will increasingly pick up our own damn burritos. This would be consistent with another trend in the restaurant industry, which is responding to labor cost increases or labor scarcity by having customers do more of the work themselves.

The shift toward pickup windows is a bigger logistical undertaking for a company like Chipotle than you might expect. While the company is emphasizing Chipotlanes at its new stores, most of its existing locations are unsuitable to be retrofitted with them. A Chipotlane costs about $75,000 to build, the company says, but it can be attached only to a store that is freestanding or an endcap, which is to say, located at the end of a strip of attached stores. Many of its existing stores are in-line — sandwiched between two other stores — with no room for a drive-through lane to be added.

That doesn’t mean Chipotle can’t push in-store pickup at those stores. Customers can still claim their burritos from those pickup shelves, but that still entails the friction of getting out of the car.

Chipotle Wins by Reducing Human Contact in Burrito Purchases