Chipotle Looks to Leverage Customer Goodwill

Last week, Chipotle Mexican Grill announced plans to take its first nationwide price hike in almost three years to help offset rising food costs. In discussing the move, Chipotle CFO Jack Hartung expressed confidence that the chain—No. 2 in the fast-casual restaurant segment behind Panera Bread, based on U.S. systemwide sales—had built up sufficient customer goodwill so as not to turn away guests with the price hike.

“We believe we have a lot of pricing power,” Hartung said during last week’s first-quarter conference call, as reported by Reuters. “We won’t cash in on all of that pricing ability right now, so we will still have some in the bank.” (The chain is targeting a mid-single-digit percentage range for the price increase.)

Chipotle founder, Chairman and co-CEO Steve Ells also talked during the conference call about chain’s strong relationship with guests—a relationship supported by such dialogue-encouraging initiatives as the launch of the “Farmed and Dangerous” video series on Hulu. That program, intended as a satirical look at industrial agriculture, “creates curiosity,” Ells said, and gets consumers talking about the kinds of food sourcing and production issues that are at the core of Chipotle’s Food With Integrity mission.

Hartung’s and Ells’ confidence would seem to be well-founded. Chipotle posted same-store sales growth of 13.4% for Q1 2014 over Q1 2013, and that follows U.S. systemwide sales growth of 16.7% for full-year 2013 over full-year 2012, as Technomic’s new 2014 Top 500 Chain Restaurants report reveals.

Also impressive: the fact that, as Chipotle noted in a news release about the first-quarter results, recent sales growth has been driven by increased traffic. Traffic’s a factor with which full-service restaurants and even other fast-casual players have struggled early this spring.

So what about 21-year-old Chipotle continues to resonate so strongly with guests? Technomic’s Consumer Brand Metrics research program, which tracks guest attitudes about 128 restaurant chains (as well as 43 retail food chains), offers several insights.

The key takeaway: In the end, it’s all about taste. Seven in 10 Chipotle customers (71%) polled this year through the Consumer Brand Metrics program rate the taste/flavor of the food at Chipotle as excellent. Not just good, but excellent. That compares with 62% of consumers who say the same about the food at quick-service restaurants as a group, and 68% who rate the fare overall at the 29 fast-casual brands tracked by CBM as excellent.

And food taste is what matters most to guests. Around 96% of consumers cite food taste/flavor as an important or very important factor in their selection of a limited-service restaurant. Issues such as ingredient quality and food sourcing are undeniably of growing interest to guests, but what drives them to return to a concept time after time is the taste of that concept’s food relative to their other options for that occasion.

Chipotle also ranks very strongly (in third place among fast-casual concepts, behind Zaxby’s and Raising Cane’s Chicken Fingers) on the measure of “craveable items I can get only at this restaurant.” Consumers indicated in a poll for Technomic’s 2012 Menu Positioning & Occasion Driver Consumer Trend Report that cravings are a major influence on their foodservice purchases: 83% said they visit a restaurant to satisfy a craving for a particular meal at least once a month.

We know as consumers ourselves that there’s a difference between foods we enjoy, and foods we crave—between yeah-that-sounds-fine foods and gotta-have-it-today foods. A solid share of Chipotle’s customers identify the brand’s food with the latter of these. And such ardent enthusiasm for the chain’s fare can help give Chipotle the kind of pricing power about which its executives (justifiably) boast.

Speaking of pricing and value, Chipotle customers also give the chain high marks on “ability to provide value through high-quality menu items”: Chipotle ranks No. 4 among fast-casual concepts on that attribute—notably, that’s a higher ranking than the brand achieves on the measure of “prices relative to other, similar restaurants.” This suggests that Chipotle’s guests recognize they may not be getting the least-expensive limited-service meal they can find, but they see visit-justifying value in the quality of the chain’s menu offerings. In fact, some 83% of Chipotle customers said that the restaurant is always in their consideration set, placing the chain first among all fast-casual brands on that attribute in the latest CBM analysis.

Chipotle positions itself as offering consumers a more-thoughtful choice when it comes to a quick and convenient meal. It’s definitely capturing the zeitgeist there, and it effectively uses online social platforms and social events (the Chipotle Cultivate Festival) to engage the Millennial and Gen X consumers that so many fast-casual brands covet. But at the last, what most inspires Chipotle’s brand loyalty—and what best allows any restaurant brand to weather a price hike—is just this: Consumers love the food.

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Christine LaFave Grace

Christine LaFave Grace writes for and produces Technomic's Trends & Directions e-newsletters. She joined Technomic in 2013 as an associate editor. Her previous roles include assistant digital editor for Crain Communications’ Modern Healthcare magazine and associate editor at Reed Business Information’s Restaurants & Institutions magazine.

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