Chipotle CEO on Chicken Shortage, Raising Prices

Brian Niccol, the CEO of Chipotle, who of course has just announced that the full year outlook over at Chipotle would be boosted for the year because there is more growth there than at other fast casual rivals in this space here. Brian, what’s going differently for you than perhaps a lot of the industry? What is driving people into the stores? Yeah, well, great to be with you guys. And look, you know, I think the purpose of Chipotle has always been food with integrity, using classic culinary techniques so that we get people delicious, nutritious food. And you know, the thing that I think we’ve just done even better of late is bring that experience to people in a fast way. So, you know, one of the things that also makes our brand really special is the customization that you can get with all these great ingredients. And so we’ve been working hard to ensure we’re staffed, we’re trained, we’re deployed so that our team members can get people exactly the burrito or bowl experience that they want at a pretty meaningful speed, so that people can get on with their day. So I think that’s what you’re seeing is the power of great food, great culinary, great people and now also some great operations around throughput. Can you talk to us a little bit, Brian, about the general state of the consumer? I think this stands out as a very strong success story, but also in the midst of a lot of scepticism with respect to how much the consumer can continue to spend and the general health of the consumer. What do you see from your consumer? Is it Chipotle specific or do you generally see a very strong consumer out there? Yeah, look, when we do the research on a broad scale basis, we definitely see that consumers are feeling a little bit of pressure on the economic side of things, right? Gas prices are elevated. They’ve been dealing with inflation for a while. Fortunately, the wage market has been strong and unemployment has been really low. So the good news is jobs are there, wages are there, but they are feeling pinched on you know, kind of their budgets. As it relates specifically to Chipotle, fortunately for us, the feedback we get is the value proposition has never been stronger. So if they’re being more you know choiceful in how they’re going to choose their 10 or $15 on a meal away from home, what we continue to hear is we’re one of the great solutions for that type of outlay of cash. And so you know we’re that’s why we’re so dedicated to having great ingredients, you know great culinary and then obviously giving people the customization that they want so they can get the food at the speed that they want too. So I think that’s that that is the thing that’s separating us right now is our ability to provide this great culinary, great ingredients at what are pretty reasonable prices. It’s interesting because some of your products are so popular that not just the earnings today are grabbing a lot of attention. It’s this idea of chicken and the chicken shortages really being faced. You know, we had reported that you told staff or recommended rather that they stop eating the chicken. Given the popularity of some of your chicken items on your menu, how has this been perceived by employees? There has been some pushback on the idea of itself. And do you have to change anything in terms of the way you handle the product? No, I think this is a story that’s looking for a headline. You know what, we, what actually happened is the supply got really tight. We asked all our employees, including myself, to pitch in for a week to maybe try something else on our menu. The good news is we’re through that pinch. There’s no challenges on our chicken supply. Actually our supply team’s done a, you know, fabulous job of securing supply to what has been really tremendous demand. So look, the good news is our employees were happy to pitch in. I guess there were maybe some employees that didn’t want to pitch in on this one, but in the end we came together, did what we needed to do and you know we’re going to continue to focus on giving people great experiences with our product and that includes chicken. You know, it’s interesting because you guys have been very fast to pivot around a lot of things here. I’m really curious around other potential ways you react to the consumer. You had mentioned kind of the general state so far, but do you think that the consumer would be vulnerable to any future price hikes? Do you think that the price hikes already have been been put on products or as far as you can go? You know, look, I don’t know the answer to that for everybody. The good news for Chipotle is we definitely believe we still have some additional pricing power if we needed to take pricing in the future. Our hope always is that we can hold our pricing because we want to protect our value proposition always. And I think frankly it’s one of our competitive advantages or really positions of strength. It’s just the strength of the brand because of our unique commitment to ingredients and the speed at which we can get people these customized meals. So you know, look, I definitely think the consumer is feeling pressure, all right. We’ve had inflation for the last couple years. In some cases things are up 2030% from where they were just not that long ago. And now here we are hopefully with inflation starting to moderate, but still things are well elevated from where they were a couple years ago. And I think that’s what positions us so uniquely in this space is at the end of the day, you can still get a really meaningful bowl or burrito from Chipotle for, you know, around 10 bucks if you choose not to have chips and guac or drink and stuff. So you know, look, I would suggest everybody look hard at their value proposition and ensure people feel great about what they’re getting for what they pay. And if that plays out, you’ll be rewarded with business. I think that’s what we’re seeing happen at Chipotle. Let’s talk a little bit more about those embedded costs and just the general sort of embedded inflationary costs and how you’re managing through that inflation. I know that Chipotle has several automation projects underway. Maybe talk to us about where your automation priorities are and how much that might offset the margin pressures from steadier inflation. Yeah, so thanks for asking about this. You know, obviously we set out to figure out what are ways we can be more productive in the restaurants. And specifically we started with asking our employees what are the, what are the pinch points, what are the things that are, you know, most challenging to do. And one of those things that came up was cutting, coring and scooping avocados every morning to make our guacamole. And so we’ve created a a a new robotic or cobotic device that will cut core and scoop the avocado. We still have to hand mash it and we still have to, you know, add the cilantro, lime, jalapenos and onions and stuff. But you know, it gets rid of some of the harder parts of making guacamole every morning. And those are that’s just one example of many other things we’re looking at. We got feedback that frying the chips is a difficult task. So we experimented with a a robotic arm to fry the chips. That one hasn’t worked out, so we’re going back to the drawing boards. But the good news is the learning from the robotic arm for frying chips informed what we did on designing what we call Avocado and then other places that we’re looking to build innovation is on our digital make line. Is there a way for us to help our employees build bowls and burritos on that line so that with the one or two people working on the line, they’re capable of producing even more burritos and bowls to other things too like AI machine learning to help us in our rewards program, our forecasting, our supply chain. So I’m really optimistic about the innovation that we’ve got coming down the Pike. Obviously we have to take it through our stage gate process, validate it, ensure that it really plays out the way we want. But I think we’re we’re hunting in the right places that’ll make the job better, protect the experience for our customer and provide no compromise on the culinary. You know, it’s interesting, Speaking of inflation, curious about the California $20.00 an hour minimum wage for fast food workers since this has happened here. Curious, Brian, about your view on what else would be impacted with that rise in minimum wage for workers here. How do you think about how that fits into your broader cost picture and whether you need to make changes elsewhere? Yeah, I mean, look, obviously we moved wages accordingly and then you know, I’m sure you’re familiar with this, but that creates compression for wages throughout the the business, meaning managers and apprentices and people that have more tenure at the crew level. So we adjusted all those wages accordingly and we did take a price increase in California to offset the wage inflation that we’re dealing with, which you know is close to 20% wage inflation. And what I’m happy to say is, you know, we didn’t have to change anything else. You know, we’re not cutting corners on our food. We’re not cutting corners on portions. We’re not cutting corners on the speed at which we provide our service. You know, we’re committed to giving people the Chipotle experience they know and love with the culinary that they know and love. And you know, obviously we had to raise prices a little bit. But you know, the reality is it’s more expensive to do business in California and you know, we adjust accordingly.