Why does Chipotle do online only?

Chipotle made headlines in March 2020 when it announced that due to the COVID-19 pandemic, it would temporarily shift to online ordering and pickup/delivery only in all of its restaurants. This dramatic operational change for the fast casual chain sparked a lot of questions from customers about why Chipotle was moving to an online-only model during the public health crisis.

What was behind Chipotle’s online only shift?

There were several key factors that drove Chipotle’s decision to rapidly transition to online ordering and close its dining rooms across all locations:

  • Public health considerations – As the coronavirus outbreak escalated in March 2020, public health officials strongly recommended social distancing to slow the spread of COVID-19. With thousands of locations that typically saw heavy customer traffic and lines, Chipotle wanted to support public health efforts.
  • Employee safety – Keeping dining rooms closed and moving to online ordering minimized employees’ exposure to COVID-19 versus continued operations with crowded stores. This helped provide a safer work environment.
  • Changing customer habits – With many people staying home and avoiding public spaces during the pandemic, customer purchasing behavior was shifting to online ordering for delivery/takeout. So the change aligned with evolving consumer preferences.
  • Other restaurants’ policies – Many other restaurants like Starbucks and Panera Bread also announced closures of dining rooms in favor of online/mobile ordering. With others in the industry making this move, it aligned Chipotle with overall sector response.
  • Future growth – Chipotle leadership saw an opportunity to rapidly accelerate the company’s capabilities with online ordering, delivery, pickup, and digital platforms. This positioned them for the future.

By pivoting operations to an all-digital model, Chipotle aimed to support public health efforts to combat COVID-19, keep employees and customers safe, respond to changing market dynamics and customer needs, follow industry peers, and build critical digital capabilities.

How did the shift to online only orders work?

To execute a full transition to online ordering in a matter of weeks across its thousands of restaurants, Chipotle implemented the following process:

  • Updated its app and website to handle online orders for pickup and delivery. This provided a clear digital ordering experience for customers.
  • Worked with delivery partners like DoorDash to scale its delivery capabilities to meet demand.
  • Redeployed employees to focus on fulfilling online orders, adapting its kitchen workflows.
  • Posted clear in-store and external signage about the shift to online orders only.
  • Closed all dining rooms and removed seating to reinforce the message.
  • Added pickup shelves at entrances for easy order retrieval by customers.
  • Improved store layouts to accommodate increased volumes of digital orders.

By leveraging its technology infrastructure and working closely with partners like DoorDash, Chipotle was able to rapidly implement and optimize its processes to focus solely on online orders. While the shift presented operational challenges, the company was generally able to execute it smoothly across thousands of locations in just a matter of weeks.

What operational changes were involved?

The move to a 100% online ordering model involved significant changes to Chipotle’s restaurant operations, including:

  • Employee roles – More staff dedicated to fulfilling digital orders in the kitchen rather than serving customers in-store.
  • Kitchen flow – Modified kitchen workflow to focus solely on online orders.
  • Order tracking – System for tracking and fulfilling a higher volume of online/mobile orders.
  • Packaging – Increased use of tamper-evident packaging for all digital orders.
  • Delivery fleet – Scaling the number of drivers to handle increased delivery volume.
  • Staff communication – Clear internal communication about the operational changes.

There were also likely impacts to employee training, inventory management, customer communication, security protocols, and other operational factors as Chipotle optimized for an online-only model.

How did customers respond?

Overall, Chipotle customers responded positively to the shift to online ordering and were understanding about the necessary changes during the pandemic. Key aspects of the customer response included:

  • Praise for safety efforts – Many customers thanked Chipotle for prioritizing health and safety by closing dining rooms.
  • Appreciation for digital access – Customers valued having the app and web ordering options with dining rooms closed.
  • Some disappointment – Some regular diners missed the in-store experience but were generally patient.
  • Ordering challenges – Managing the updated ordering process took some adjustment by customers.

Chipotle also had strong demand growth for its digital platform during the early months of the pandemic, indicating customers were onboard with the online shift. Overall, the customer base recognized that the changes were necessary in light of the public health situation.

How did online sales grow during the pandemic?

With its digital platforms as the only option for customers during COVID-19, Chipotle saw tremendous growth in its online sales channels while dining rooms were closed or limited. Some key figures highlighting the growth include:

  • Digital sales up 80% in March 2020 vs. year before, as pandemic accelerated.
  • Digital orders representing 60% of sales by mid-April 2020 with dining rooms closed.
  • Online sales up 216% in second quarter 2020 versus pre-pandemic levels.
  • Digital sales of $1 billion just in 2020, double previous annual digital sales.

The dramatic rise in online ordering reinforced the value of Chipotle’s digital investments. All the growth in online sales also enabled stores to remain operational and continue generating revenue despite dining room closures.

What was the impact on Chipotle’s financial performance?

Despite the operational challenges of shifting to a completely digital model so quickly, Chipotle’s sales and financials proved surprisingly resilient during the transition to online orders only in spring 2020. Some key financial impacts included:

  • Strong digital sales growth supported overall revenue despite dining room closures.
  • Margins took a modest hit early on due to delivery costs and operating inefficiencies.
  • Earnings declined but remained positive each quarter through pandemic.
  • Sales rebounded quickly as operations stabilized.
  • Digital sales growth drove revenue gains above pre-pandemic levels by Q3 2020.

Although the pandemic presented undeniable challenges, Chipotle was able to adapt reasonably well financially thanks in large part to the strength of its digital platform. The company’s focus on technology and online capability helped mitigate the impact of COVID-19 operational restrictions.

How did Chipotle’s stock price react?

Chipotle’s stock (CMG) demonstrated resilience compared to the broader market during spring 2020 as investors gained confidence in the company’s digital ordering capabilities and operational execution amid the pandemic transition:

  • After steep pandemic sell-off in March, CMG shares rebounded by early April 2020.
  • CMG rose 30% from late March to late April 2020, while S&P 500 fell slightly.
  • CMG hit all-time highs in August 2020, with sales rebounding despite ongoing dining room limitations.
  • CMG stock price gained 60% from market low point in March to end of 2020.

Chipotle’s strong digital capabilities, brand loyalty, and operational adaptability enabled it to recover more quickly than many other chains, as reflected in its stock performance.

What does the future look like for Chipotle’s online ordering?

While Chipotle reopened its dining rooms as pandemic restrictions eased, it is likely that digital ordering will remain an important sales driver going forward based on its massive growth during COVID-19. Some possibilities for the future include:

  • Online sales remaining elevated compared to pre-pandemic levels.
  • Diners continuing to embrace mobile ordering for takeout and delivery.
  • More focus on seamless integration between physical and digital channels.
  • Potential expansion of delivery-only locations (“Chipotlanes”) to serve digital demand.
  • More emphasis on technology to optimize the digital experience.

The pandemic dramatically accelerated Chipotle’s digital and online ordering capabilities. Even as conditions return to normal, online ordering has likely become permanently elevated compared to historical levels. Chipotle will continue focusing on technology and digital platforms as a key facet of operations.

Conclusion

Chipotle’s temporary shift to online ordering only during the early months of the COVID-19 pandemic represented a dramatic operational change for the company. However, it enabled Chipotle to support crucial public health efforts, meet customer needs, align itself with industry conditions, keep business flowing, and accelerate critical capabilities. Thanks to the strength of its digital platform, Chipotle demonstrated impressive resilience during the crisis. Online ordering has now become an even more vital part of Chipotle’s business, emphasizing the importance of its technology investments. While challenging, Chipotle’s transition to online-only operations provided an unexpected opportunity to advance its digital evolution.

Year Digital Orders Percent of Sales from Digital Channels
2018 500 million 15.7%
2019 1 billion 20.9%
2020 2.8 billion 49%

This table helps illustrate Chipotle’s dramatic growth in digital orders and online sales during the pandemic year of 2020 as it shifted operations to focus on its online platforms.

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