Small towns fuel Chipotle’s ambitious North American expansion plans

A woman wearing a face mask leaves the Chipotle Mexican Grill with her takeaway order on January 14, 2021 in Monterey Park, California.

Frederick J. Brown | AFP | Getty Images

Small towns love big burritos, and this is fueling Chipotle Mexican Grill’s North American strategy.

The restaurant chain told investors on Tuesday that it is expanding its long-term target for its presence in North America from 6,000 to 7,000, largely due to success in smaller towns. In comparison, McDonald’s has 13,443 restaurants in the US alone, although the vast majority of them are operated by franchisees. At the end of 2021, Chipotle had 2,966 restaurants worldwide, most of which are company-owned and located in the US.

Chipotle’s shares rose nearly 9% in early trading on Wednesday after the company beat Wall Street’s earnings guidance and announced its new development plans.

“We expected unit growth to accelerate in the coming years, but the scale is higher than we expected,” BMO Capital Markets analyst Andrew Strelzik wrote in a note to clients. “The possibility of a smaller market with higher returns is interesting as we have seen similar dynamics work well for others in this space.”

In 2022, the network plans to open from 235 to 250 new outlets. Starting in 2023, the company believes it will be able to accelerate the rate of new unit additions in the range of 8% to 10% per year, citing improved return on investment. More than 80% of new restaurants will include Chipotlanes, walk-through lanes designed to accept digital orders only.

“What Chipotlane also allows us to do is go out to these smaller cities where we have another convenient hotspot,” CEO Brian Niccol said in a conference call with analysts. He defined “small towns” as areas with a population of 40,000 or more.

Many up-and-coming restaurant chains such as Sweetgreen and Cava have begun shifting their focus to suburban areas, but Chipotle is entering the next phase of its growth by opening locations in the deeper suburbs of the US and Canada.

Chipotle restaurant director Scott Bowwright credits Chipotle’s popularity to the marketing strategy of Niccol, who took over as CEO four years ago after successfully managing Yum Brands’ Taco Bell. Fellow Taco Bell alumnus Chris Brandt became Chipotle’s marketing director and began spending money on traditional advertising, such as television commercials. The company even launched its first-ever Super Bowl ad last year.

“Now we have a national presence,” Boatwright said in an interview. “I think these small communities recognize the brand and see it on social media. [media]on television and people are really coming out of these small communities in which we have historically struggled in droves.”

Botwright said the chain benefits from cheaper rent in smaller towns. And even though restaurants in smaller towns serve a smaller population, they still show strong sales.

“It’s a really advantageous position,” he said.

Correction: Scott Bowwright is the director of the Chipotle restaurant. In an earlier version, his name was misspelled.

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