Chipotle CEO Brian Niccol says that all signs point to positive forward progress in his planned turnaround. - Jamie Kripke Chipotle CEO Brian Niccol says that all signs point to positive forward progress in his planned turnaround. - Jamie Kripke

Chipotle’s Focus on In-Store Employees Pays Off in Guest Satisfaction

Guests seem happy with recent changes at Chipotle, a direct result of the company’s focus on marrying guest satisfaction to employee training and performance. Labor was on the menu during Chipotle’s latest earnings call, as top leadership addressed the chain’s initiatives and corporate structure changes that have taken place since CEO Brian Niccol joined the company in March.

Investors seem happy, too. Same-store sales beat expectations, up 3.3 percent.

Chipotle is working aggressively to cut the fat from its operations, and has closed 29 of its underperforming restaurants so far, said the company’s chief financial officer, Jack Hartung, on the chain’s second quarter earnings call. These closures represent half of the restaurants slated for closure. Additionally, Chipotle closed its Denver HQ and New York office in early July, laying off or offering relocation packages to 431 corporate employees.

Hartung did not address the corporate office closures and relocations except to quickly note the cost savings coming from closed restaurant and office leases and to address increased costs associated with restructuring the organization. “[Costs are] going to be returned on that. It’s not going to be as black and white or linear,” he said. “The return is going to be on having a culture that’s more innovative, a culture that’s more results-oriented, and we think there’s going to be lots and lots of benefit there.” Chipotle has previously estimated that the restructuring will cost the company between $115 million to $135 million.

Culture and employee morale seem top-of-mind for Chipotle executives. Niccol’s prepared remarks at the beginning of the call focused on the chain’s in-store labor initiatives, specifically at its stores creating what he calls a culture of accountability. The chain has opened 34 new locations this quarter.

“Accountability is both on developing a great team as well as being accountable to provide a great experience. Our teams are staffed correctly, engaged at a better level. Everyone has clarity of what their role is on the team,” he said, but added that it does take time to build that culture.

Hourly employee turnover is down since last year, signaling greater employee satisfaction, and Niccol said Chipotle has “moved to some quarterly bonus programs,” that have had a “material impact” on employee satisfaction. A new training program dubbed Cultivate University launched in April, trains the company’s field leadership in a centralized classroom environment, with the goal of creating nationwide consistency across the company.

Chipotle has also invested in redesigning its forecasting and labor tool internally to deliver the right amount of labor at the right time to meet guests’ needs and expectations. Employees can see and swap schedules remotely, on mobile phones. “We believe leveraging technology like this makes us a better employer,” he said.

The chain’s biggest metric for success, though, is guest satisfaction. Niccol says he’s seen a “meaningful decline” in guest complaints. “We’ve made progress and our guests have noticed.”

The Promise of Off-Premise and Digital

Amid all the talk of in-store hospitality, one of the chain’s biggest growth opportunities comes via a third-party company. Delivery numbers are up in a big way for Chipotle, which launched a new delivery initiative with Doordash in late April. In mid-July, Chipotle built a delivery option into its own app, though delivery logistics are still powered by Doordash. Digital sales, of which delivery is a part, accounted for 10.3 percent of overall sales. Niccol didn’t break out delivery sales especially, but did say that delivery orders have quadrupled in the second quarter.

Delivery is now available at 1,700 restaurants, with an additional 300 to come before the end of the year. The digitally-enhanced second make line — a dedicated kitchen prep area for digital orders — is in 500 restaurants today, and will be in 500 more by the end of the year. The chain’s other digitally-focused in-store initiative, the pickup shelf, will be expanding to a larger number of restaurants, but is still in testing phase.

“Delivery performance, not surprising, is impacted by how we promote it,” Niccol said, calling the space a multi-billion dollar opportunity. Average check size for mobile and delivery orders is between $16 and $17. Chipotle’s traditional check size is around $12.

In after hours trading, shares of Chipotle are up 6 percent.

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