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Chipotle Scouts for Post-Pandemic Real Estate Expansions

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Chipotle Scouts for Post-Pandemic Real Estate Expansions

A Chipotle store stands behind a branded Chipotle sign.

by: Lou Hirsh | CoStar News | April 22, 2020

Chipotle Mexican Grill, the fast-casual restaurant chain, said it's looking for real estate opportunities in a post-pandemic world after gaining strength from its digital ordering platforms working overtime as dining rooms remain shut.

"We're not shying away from sites and our ability to get the sites we believe are best for our digital offerings and our Chipotlanes," said CEO Brian Niccol, referring to the company's drive-up windows geared to picking up food ordered in advance through its website and mobile apps. "If a developer is cash poor and they're looking to sell a site and if the price is right, we'll certainly be there, and we're willing to buy that land so we can lock in our occupancy cost forever."

Speaking with analysts April 21 on first-quarter financial results, Niccol said Newport Beach, California-based Chipotle's digital sales rose 81% from the year-earlier quarter, reaching a company record $372 million for a single quarter.

Chief Financial Officer Jack Hartung said the company's future development pipeline remains strong, though it has had to postpone openings on some of the 49 locations in development due to construction-related delays.

"We're already beginning to see an increase in sites available as other businesses have pulled back" on expansions and new move-ins, Hartung said.

Niccol told analysts the company plans to continue its expansion of new and existing locations where it will add Chipotlanes. Those drive-up lanes have bolstered sales along with pickup services enabled by third-party delivery services and in-house food preparation lines geared specifically to online orders.

The vast majority of Chipotle's restaurants operate in leased rather than owned real estate, and those Chipotlanes often involve extensive renovations to buildings. Landlords haven't always been enthusiastic about those changes, but Niccol said he's seeing less resistance now that most restaurants are struggling in the current climate and landlords are at pains to collect rent from many of them.

In the days before the economy returns to something resembling normal, Chipotle executives said they anticipate a softening of rents, and perhaps more enticing opportunities to buy rather than lease real estate. Chipotle is also in talks with landlords in some locations on rent breaks and deferrals.

Chipotle during the first quarter opened 19 new restaurants including one relocation and closed two restaurants. About 100 restaurants as of April 21 remained temporarily closed as a result of the coronavirus pandemic, mainly those located inside malls and shopping centers along with 17 locations in Europe.

The company eked out a 3.3% year-over-year increase in same-store sales, even with a 1.4% decline in overall transactions at its 2,500 restaurants, the bulk of which are company owned rather than franchised. Total revenue for the quarter rose 7.8% to $1.4 billion.

The company said the Feb. 29 leap day helped Chipotle garner a 14.4% rise in sales and 10.7% increase in transactions for February, but that was followed by a 16% March sales decline from the coronavirus effects.

Executives said Chipotle does not plan to use loans being offered as part of federal stimulus bills, but expects to take advantage of certain deferrals on employment-related taxes that are part of national efforts to keep payrolls intact and minimize layoffs.

Officials said things could change as dining rooms reopen, including more staff deployed to maintain sanitation and social distancing, as well as changes in the way soda fountain and condiment areas are configured in order to minimize interaction among customers.