Chipotle Delivers Strong 2023 Results Powered by Operating Momentum
CMG focused more on Chipotle's operational execution, throughput improvements, menu strategy, and real estate expansion.
Chipotle recently reported robust fourth quarter and 2023 results, capping off an impressive year. Total revenue grew 14% for the year, reaching almost $10 billion. Same-store sales grew 7.9%, fueled by new menu innovations like Chicken Al Pastor and operational improvements. The digital mix held steady at 37% of sales, demonstrating sustainability even as dining rooms were fully reopened. 4Q23 provides an exclamation point on the year, with comps accelerating to 8.4%, led by over 7% transaction growth. Management credited better throughput execution and a successful Carne Asada LTO launch. Restaurant-level margins also expanded to 25.4%.
Behind the numbers, Chipotle hit critical milestones in its expansion and growth strategy. The brand opened 271 new restaurants, including 238 Chipotlanes, ending 2022 with over 800 high-margin drive-thrus. Average unit volumes now exceed $3 million. Extolling "exceptional people, exceptional food, and exceptional throughput," the executive team believes they have a long runway towards 7,000 North American locations and $4 million AUVs.
But it wasn't all a celebration. Management called out "elevated costs across the board" from inflationary pressures. While menu pricing and operating leverage buoyed margins last year, they expect low-to-mid single-digit commodity inflation for 2023. Wage inflation looms as well. The outlook promises fiercer economic headwinds. Still, optimism reigns that Chipotle's sharpening operations can mitigate macro drags. The guidance calls for 2024 comps in the mid-single digit range. Management expects the expanding brand to sustain industry-topping sales momentum and earnings growth. But investors will watch closely how recessionary fears manifest for the restaurant leader through this year
Revenues:
- Q4 sales grew 15% year-over-year to $2.5 billion, driven by an 8.4% comp sales increase from over 7% transaction growth.
- Full year 2023 sales grew 14% to $9.9 billion, with a 7.9% comp.
- Digital sales were 36% of sales in Q4 and 37% for the full year.
Same-Store Sales:
- 4Q23 comps of 8.4% were driven by over 7% transaction growth. Strong throughput execution and a boost from the Carne Asada LTO contributed to traffic growth.
- The full year 2023 comp was 7.9%. Management expects 2024 comps to be in the mid-single digit range, reverting to more normalized trends.
Price & Mix:
- 4Q23 menu pricing was ~2.5-3%. Mix was unfavorable by 1.5%, mostly driven by the lapping of group order.
- For Q1 2023, pricing will be similar at 2.5-3%. Expect further group order mix headwind.
Margins:
- 4Q23 restaurant margins increased 140 bps to 25.4%, driven by sales leverage and lower marketing spending.
- For 2023, the company expanded margins by 230bps to 26.2% due to operating leverage.
Bullish indicators:
- Transaction growth re-accelerated in Q4, showing operational execution driving incremental traffic. Lays the groundwork for 2023.
- The digital mix stabilizing around 37% shows the channel's sustainability.
- Record new unit growth with attractive Chipotlane returns. Management expects 2024 openings of 285-315 units.
- Executives were confident in expanding long-term earnings power and reaching $4M AUVs. Margin expansion supports this.
Bearish Indicators:
- January comps impacted by weather, signaling a tougher start to 2024.
- Marketing costs are expected to increase in 2024, pressuring margins early in the year.
- The system still deals with inflation across several categories, like avocados, tortillas, and beef.
Yum China's Recipe for Q4 Success: Digital, Delivery and Cost-Cutting
EPS (ex-items): $0.25 vs. FS $0.1 and Revenue; $2.49B vs. FS $2.32B; Comps: +4% vs. FS +3.3% Restaurant Margin: 10.7% vs. FS 9.9% Adjusted Operating Margin: 5.0% vs. FS 3.7% and surprisingly increased quarterly dividend by 23.1% to $0.16 per share. Strong performance from KFC (+3% comps) and Pizza Hut (+6% comps); Focused on cost control - reduced G&A expenses by 5.8% in 2022; Aiming to make each quarter profitable for Pizza Hut. Expecting steady core operating profits in Q1 despite tough comparison. Aiming to maintain stable margins over the long run by cutting costs and leveraging digital
Yum China delivered double-digit growth in the fourth quarter of 2023, capping a pivotal pandemic recovery year for the operator of KFC, Pizza Hut, and other brands in China. 4Q23 system sales grew 21%, fueled by 12% net new store growth to reach 14,644 total locations, a 4% jump in same-store sales, and an easy comparison to temporary COVID closures last year. Across the board, these results beat expectations. China's economy expanded at a slower yet still-solid mid-single-digit pace in 2023 as consumption patterns normalized post-reopening. Yum China sees ample room for growth, with KFC only serving 1/3 of the population currently and eyeing expansion into 1,000 lower-tier cities where performance has shined.
While consumers spent more rationally than during the initial reopening euphoria, YUMC continued luring diners with menu innovation and value. Over 500 new products dropped in 2023, plus regular promotions kept KFC and Pizza Hut traffic humming. Restaurant margins also expanded in 4Q23 on lower costs and expenses. That said, 1Q24 faces tough year-ago comparisons due to temporary benefits. So, Yum China expects stable core operating profit growth to continue its steady march toward long-term double-digit EPS gains. With a record 1,697 store openings last year, Yum China still envisions unleashing more than 20,000 locations by 2026 to fortify its place as China's massive economy and middle class expand. Through reinventing operations for smaller cities and staying laser-focused on value amidst a more careful consumer.
China Macroeconomic Conditions:
- China's economy grew at mid-single-digit GDP growth in 2023. However, the restaurant industry grew at double-digit rates, around 20% in 2023.
- Urbanization and long-term consumption upgrades present opportunities, especially in lower-tier cities where living costs and rents are much lower.
- Yum China continues to see a long growth runway, with KFC only currently serving 1/3 of China's population. They see room to expand across over 1,000 additional cities.
China Consumer Sentiment:
- Consumers are more "rational" in their spending compared to the initial reopening surge in 2022. However, the desire to indulge is still strong around holidays.
- There is caution among consumers amidst the slowing macroeconomy. However, Yum China saw transaction growth accelerate in Q4, showing the resilience of their brands.
- They continue to see opportunities in premium offerings and more affordable, value-conscious menu items to appeal to a wider consumer base.
- Recovery is broad-based across regions, with second-tier inland cities performing particularly well. Lower-tier city performance remains robust.
Winning Big Beyond the Game: IS DoorDash's 'All The Ads' Super Bowl Sweepstakes Is Redefining Game Day Advertising
What if I miss the DASH ad during the game?
Super Bowl commercials represent a unique intersection of advertising, entertainment, and cultural commentary. The DoorDash "All The Ads" sweepstakes is a contemporary reflection of how brands are continually pushing the boundaries of traditional advertising to create immersive and interactive experiences that captivate the Super Bowl's diverse audience. This approach amplifies the impact of their advertising efforts and celebrates the Super Bowl's broader spectacle. The DoorDash "All The Ads" advertisement for the Super Bowl, is a creative marketing campaign designed to engage viewers by turning the act of watching commercials into a potentially rewarding experience. This campaign combines several elements of interaction, gamification, and incentive to draw attention to DoorDash's services and the plethora of brands featured during the Super Bowl commercial breaks. Here's a breakdown of how the DoorDash ad campaign functions:
Engagement Through Gamification
- "Crack the Code" Mechanic: Participants are invited to watch the DoorDash Super Bowl commercial closely to "crack the code" hidden within the ad. This interactive element encourages viewers to pay more attention to the advertisement, increasing engagement and brand recall.
Incentivization
- Sweepstakes Prize: The grand prize of winning "everything" advertised during the Super Bowl commercial breaks is a significant incentive for viewers to participate. This prize includes various products, from food and beverages to cars, thereby appealing to a broad audience.
Participation Process
- Watch the Ad: Viewers must watch the DoorDash Super Bowl commercial attentively to identify the hidden code.
- Visit the Campaign Website: After discovering the code, participants must visit the "All The Ads" campaign website designated by DoorDash for this specific purpose.
- Enter the Code: Participants submit the code they deciphered from the commercial on the website.
- Entry Submission: Participants complete the submission process after entering the code, which likely includes providing contact information for sweepstakes entry.
Marketing and Business Objectives
- Showcase Services: By promising to deliver "all the ads," DoorDash highlights its expansive delivery capabilities, emphasizing its role as a multi-category marketplace.
- Brand Synergy: The campaign cleverly integrates various brands featured in Super Bowl commercials, demonstrating DoorDash's wide-ranging partnerships.
- Increase User Engagement: The interactive and competitive nature of the campaign aims to increase user engagement with the DoorDash brand, potentially leading to higher app downloads and usage.
- Publicity and Buzz: Creating a unique and memorable Super Bowl ad campaign generates buzz and media coverage, further enhancing DoorDash's visibility during one of the most-watched events in the U.S.
Will the ad generate the ROI needed?
Whether DoorDash's "All The Ads" Super Bowl campaign will benefit the brand hinges on leveraging one of the year's most-watched events to enhance its market presence, attract new customers, and reinforce loyalty among existing ones. This innovative campaign aims to captivate a broad audience by offering an unprecedented sweepstakes prize: winning everything advertised during the Super Bowl's commercial breaks. Such a bold move is designed to generate buzz, increase brand visibility, and showcase DoorDash's expansive delivery capabilities. The effectiveness of this campaign in building DoorDash's brand value can be evaluated through various metrics, including increased brand awareness, heightened website traffic and customer engagement, and a boost in new user sign-ups and order volumes post-Super Bowl. Additionally, the campaign's success can be gauged by the positive sentiment and buzz it generates on social media, press coverage, and the overall public and media response. Ultimately, the "All The Ads" campaign represents a strategic effort by DoorDash to stand out in a crowded advertising space, engage viewers uniquely and memorably, and demonstrate its service diversity and reach. If the campaign successfully captures the audience's imagination and encourages increased engagement with the DoorDash platform, it could lead to significant benefits for the brand, including stronger customer loyalty, higher revenue, and an enhanced market position. The accurate measure of success will be in the campaign's ability to create immediate impact and foster long-term brand affinity and customer relationships.
