Mobile ordering is a big part of Chipotle's (NYSE: CMG) turnaround plan. The company revamped its iPhone and Android app last November, streamlining the experience and adding support for coupon codes, Apply Pay, and Android Pay. The app allows customers to place orders for pickup at Chipotle locations, and those orders are prepared on dedicated prep lines, in most cases.
Chipotle already offers delivery through third-party services, but pick-up ordering has been the main focus of its own app. That changed earlier this week, when the company announced the full-scale roll-out of direct delivery through its mobile app. Powered by delivery service DoorDash, customers can now place delivery orders as well as pick-up orders without needing to go through a third-party app or website.
Struggling to attract diners
Chipotle managed to grow its comparable sales by 3.3% during the second quarter, a decent if not spectacular result. But that growth was driven entirely by price increases and the addition of queso to the menu. Menu prices rose by 4%, while the number of comparable transactions dropped 1.8% from the prior-year period.
Chipotle's digital initiatives are part of its plan to drive sales higher. Digital sales grew by 33% in the second quarter, and they now account for a little over 10% of overall sales. That strong growth means non-digital transactions slumped even more than the aggregate.
By putting delivery directly into the Chipotle app, the company has removed a pain point for its customers. Instead of having to go though a third-party service like DoorDash or Postmates, the 4 million monthly active users of Chipotle's app and website can now place a delivery order in the same way they place an order for pick-up.
Chipotle's total delivery sales quadrupled in the second quarter, but they remain a small part of the company's overall revenue. CEO Brian Niccol said during the second-quarter conference call that over 50% of customers don't know that Chipotle is available for delivery at all. In-app delivery should help boost awareness and keep delivery sales growing at a swift pace.
In-app delivery is now available in 70 markets and at over 1,800 Chipotle locations. Delivery is free until Sept. 12, after which the service will come with a fee. Chipotle didn't disclose the post-promotion fee in its press release, but Chipotle delivery through third-party service Postmates is $3.99, so expect the fee to be in the same ballpark.
Delivery alone won't solve the problem
Boosting its delivery business could help Chipotle draw in more customers, but it could also simply cannibalize the in-store business. A lack of delivery options isn't why Chipotle has been suffering from slumping traffic. The company lost the trust of its customers after its food-safety crisis in 2015, and a string of additional incidents since then has only compounded that issue.
If a customer doesn't want to go to Chipotle in the first place, they also probably don't want to have it delivered. On top of pushing delivery, Niccol plans to revamp the company's marketing efforts, launch a loyalty program, and become more aggressive with new menu items. Chipotle is testing quesadillas and milkshakes, and it's likely the pace of menu additions will be much faster than in the past.
Making delivery more accessible may help Chipotle boost sales among the customers who haven't abandoned the chain, but it won't solve the core problem. That will take time and a lot of new marketing dollars, among other things. Chipotle stock has surged this year, but investors may be underestimating how difficult resurrecting the burrito chain will be.
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