Despite posting a record-breaking quarter, Chipotle Mexican Grill CEO Brian Niccol said the fast casual could be doing even better—if not for ongoing and widespread staffing shortages.
“I know we’re missing sales,” Niccol told analysts late Thursday.
To lose out on the fewest number of burrito orders, the 2,892-unit chain is doing lots of shifting and shuffling of its current workers, while charging hard to recruit new ones.
Chipotle has long been essentially two restaurants in one. There’s the customer-facing, cafeteria-style line for in-store orders. (Despite the chain’s aggressive digital push, that frontline still generates nearly 60% of Chipotle’s business—about $1.1 billion in sales during the third quarter.)
And then there’s the digital kitchen created to service orders that come in through apps and websites.
Given the current staffing challenges, Niccol said, “We’re able to flex that digital makeline so that we can keep the integrity of our frontline experience,” according to a transcript from financial services site Sentieo. “So, we never have to close our restaurants.”
Those restaurants may never have to fully shut down because of staffing woes, but store managers sometimes make the decision to “throttle back our digital business,” so workers servicing digital orders can jump over to the front cafeteria line.
In areas with multiple locations, he noted, those digital orders get bumped over to another Chipotle.
“The good news is we got another restaurant right around the corner that is able to fulfill that digital order, Niccol said. “And so, we don’t see a lot of drop-off in the business that way. But, at the end of the day, I wish all our restaurants were fully staffed.”
Chipotle has been aggressive in its push this year to recruit and retain workers. At the end of May, the chain raised its average hourly wages to $15 an hour, an increase of $2.
The Newport Beach, Calif.-based operator’s labor costs were 25.8% in the most recent quarter, a jump of about 40 basis points for the last year. The chain predicted its labor costs would continue to rise into Q4, saying it expects labor to be in the “mid-26% range” in the months ahead.
For hiring, Chipotle is taking a team-by-team, restaurant-by-restaurant approach, Niccol said.
“When you go into a restaurant that is struggling with staffing, we seek out to understand why,” he said. “Do we have the right leader? Do we have the right culture? … And then obviously, in each of these markets, we have to make sure that our wages continue to be competitive.”
Niccol said hourly wages can be adjusted on a restaurant-by-restaurant basis, even in the same market.
Reopening dining rooms while continuing a thriving digital business amid unprecedented labor pool challenges was “harder than we had hoped,” he said.
“I mean, look,” he added, “Obviously, a fully staffed restaurant outperforms an understaffed restaurant.”
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