If you were to review the MD&A section of some of the world's most influential enterprises' 10Ks (think Facebook, Tesla, Goldman Sachs), you would likely find words like "innovation", "change", and "transformation" liberally applied for dramatic effect. The truth is that big business occasionally needs a kick in the backside to think seriously about "innovative" ideas. For some businesses the coronavirus pandemic has proved to be just the kind of catalyst they needed.
Case in point: Chipotle Mexican Grill. On November 13th, 2020, the burrito chain beloved by drunken college students and time-strained office workers alike, opened its first "ghost kitchen". As we've discussed here before, the pandemic has accelerated many food service brands' efforts to leverage digital platforms to make it easier for customers to order food seamlessly and at a higher volume. To this end, brands like McDonald's, Yum! Brands, and Domino's have all invested heavily in apps and rewards programs, as well as expanded delivery services. Chipotle, however, has taken it one step farther.
The burrito slinger's new, Highland Falls, NY "ghost kitchen" is a digital only restaurant that will prepare food solely for pick up and delivery orders, forgoing the traditional dine-in option. Each order the ghost kitchen produces must come in via Chipotle's app, website, or a partner's 3rd party platform. Customers will have access to a lobby area where they can wait for their food to be prepared, but the venue will lack Chipotle's characteristic, customer-facing cookline that builds customized tex-mex in front of your eyes.
Digitally enabled food service has been a real winner in the pandemic era economy, and many brands are expanding their investment in related infrastructure, betting that the digital trend will stick. Per Chipotle's most recent quarterly filing, digital orders now make up almost 50% of sales, growing over 200% on a year over year basis. Of course, some of these gains will fade as the world falls back into old habits post-coronavirus. However, many customers will discover that they actually prefer the convenience of placing a low-cost delivery order over the hassle of physically traveling to their favorite fast-casual spot.
Public markets have been loving Chipotle YTD 2020. Following the initial shock of the pandemic hitting the global economy, shares have boomed and are currently trading nearly 50% above their January 2020 opening price. Again, time will tell how much of this share price activity will amount to a "covid-bump", but few food service brands have fared as well as Chipotle over the last 9 months. Chipotle's initiative to focus more exclusively on digitally-enabled service models will likely further woo investors.
As investors look to the future, thinking through how companies in each sector can capitalize on the digitalization trend is a productive exercise. One-off shocks like the coronavirus pandemic often play a role in creating lasting change in market dynamics, and this time will be no different. As they say, necessity is the mother of invention.