Chipotle’s monumentally bad quarter may change its expansion plans.
In the company’s quarterly earnings call Tuesday, Chipotle Co-CEO Montgomery Moran touched on the prospects for new stores. Moran said that the sales crater following the company’s E. Coli outbreak has changed the calculus for new locations of the fast casual chain.
Here’s Moran (emphasis ours):
So too has that slowdown affected our new store openings. But it’s not — it’s affected them disproportionately. What I mean is that most of our new restaurant openings have still held the same percentage that they historically have held versus our trailing 12-month sales of all our existing stores.
But the exception is that in the new markets and developing markets, in those markets there’s been, I think, even more softening of their sales than there has been nationally, say. So the delta between a new store opening in a developing or new market has been slightly greater than when compared to the rest of our restaurant average daily sales.
Quick numbers refresher before we dive into Moran’s comments. Same store sales for the Mexican chain were down nearly 30%, revenue was down 23.4% year-over-year, and the company posted its first quarterly loss ever. Not good, to say the least.
What Moran is getting at, however, is that while sales cratered across the board they were even worse in markets in which Chipotle did not have a presence. Essentially, those towns and cities that have never had a Chipotle before.
“So the delta of new and developing markets is a little bit bigger than the delta between proven and established markets,” Moran continued. “And so that percentage of all of our new store openings though is quite low. It’s about 13% of our new store openings are in new markets or developing markets.”
There are plenty of speculative reasons for this shift, the first thing people know about the brand is the outbreak, customers aren’t as invested in Chipotle in new markets, and so on.
The crux of it is, the sales are worse and that might make Chipotle less aggressive to branch out into new cities.
Here’s Moran again (emphasis again ours):
So it’s going to be a very slight effect in terms of number of openings, and we have such a strong pipeline that we don’t think it’s going to affect the overall numbers that we’ve shared with you that we plan to open. But it’s going to give us, I think, the ability to be a little bit more discerning on a few of our locations, and just make sure that any ones for which the development cost is perhaps a little bit high, or the rent structure isn’t quite advantageous, we might walk away from some of those deals that we might have pursued a year ago today, for example, just to be responsible with our investments.
If your town doesn’t have a Chipotle now, don’t hold your breath for one.