Sara Senatore: Thank you. A question on labor and then as a follow-up on loyalty. Can you maybe talk a little bit, labor was, I think, better than you had expected or we had anticipated certainly I was wondering if you could just talk, is that just because transaction growth was better. I don’t know, if you can decompose the same-store sales for us. Is it the lower turnover? Just trying to understand where the improvement came from? And then a question on loyalty is you mentioned, kind of, improved sign-ups. I guess when I look at loyalty membership growth year-over-year, it looks like it’s still kind of in that 20% range. Do you have any thoughts about how big that could be or what share of your unique customers, you’re seeing members of loyalty. Just trying to understand like sort of the run rate for that as a comp driver. Thank you.
John Hartung: Yes. Yes, I’ll take the labor piece first, Sara. First of all, it was most of the benefit that we saw was sales driven in the quarter. We saw our transaction turn positive. We’re still running menu price increase compared to last year and about a 10% range. So when you have that kind of a flow-through where transactions are flowing and menu prices are flowing as well. That was a significant benefit in the quarter. We did have some labor inflation, so that was an offset to it. And then we did see some efficiencies. So we did see, really, for the first time, the labor scheduling tool we put into place last year was really starting to pay off. And then the fourth thing I would just say is normally this time of the year as our sales begin to increase seasonally, that is the time where our labor tends to be more efficient.
It tends to happen where the weather starts to get warmer, our sales start to grow and our managers are trying to keep up on the schedules, but they end up basically driving a little bit of efficiency. They always seem to be maybe a step or 2 behind. The good news is, as Brian mentioned, operationally, we feel like the restaurants ran really well, and we drove that additional labor efficiency.
Sara Senatore: Thank you. And then just on loyalty?
Brian Niccol: Yes, I can say on the loyalty, your question there, what we’ve definitely seen is we see people higher enrollments when we make it easier to be engaged in the digital system. So a couple of things happen, right? I mentioned this in my earlier remarks. The team improved your ability to redeem rewards by alerting you, so that you don’t forget this can form. We also improved your ability to end up going to the right restaurant for your order, which was a big deal. That’s one of the biggest misses we seem to have with customers where they didn’t realize they were ordering from different restaurants than where they were intending to go. So those types of things make the engagement easier for people, which then they stay in the program.
And now doing things like free Potle, Fajita Quesadilla, digital-only just attracts new people to come into that space. And that is what we want to do. We want to continue to have acquisition and then we want to dial up the personalization and make it super easy to stay active and engaged, because we know the more engaged you are it plays out in more purchase frequency and higher ticket. So we’d love to get $33 million to $40 million. I don’t know where the ceiling is on this thing, but we’re going to continue to push towards getting as many people involved and then work very hard to turn it into a very personalized program that keeps them engaged.
Sara Senatore: Okay. Thank you very much.
Operator: The next question comes from David Palmer with Evercore ISI. Please go ahead.
David Palmer: Thanks. I wanted to double-click on that labor productivity stuff. In the past you’ve talked about the number of orders you could do in a 15 minute block during those peak hours in the front make line, could you give us a sense of where you are now and where you think that can go realistically over the next one or two years. And then what that would mean to your sales, if you got there?
John Hartung: Yes. I mean, I’ll cover a couple of stats and then Brian, you can add-on as needed. First of all, in terms of the first quarter, we did push past our 15 minute max, compared to last year. So, it was nice to see as our transactions turned positive during the quarter, that we did push past last year. We actually at the end of the quarter and as we moved into April, we actually push past where we were in the second quarter of last year as well. So, we’re seeing nice progress, but we’re still in that low 20%s range, David. We think we can get into the mid-20%s. Mid-20% is comparable to what we were doing in 2019, before the pandemic, if you adjust for the shift in our digital business. But beyond that, if you go back even a few years before that, we don’t think there’s any reason why we can’t get back into at least the high 20s or maybe even into the low 30s as well.
Now that will take a few years, but we think that’s one project that Brian mentioned, his idea of experimenting with, how can we make sure that we’ve got basically the labor deployment and we’ve got the cadence of orders coming through to the DML, to be set such that our teams can with confidence, they can run both lines without feeling this pressure to pull from one line to the other. And typically what happened is the DML, if the orders are coming through pretty high on the DML, there is a tendency to pull somebody from that frontline and I think we’re basically seeing some good early results to tell us that we think there’s going to be a way to breakthrough and allow our teams to really execute it out at a really high-level on both lines.
So, I think that’s potentially and a lot to get to some of these higher number 15 minutes throughput figures.
David Palmer: And if I look back a decade, you’re your labor as a percentage of sales was in the 23% area. I know a lot’s changed in the labor market since then, but you’re working on a lot of stuff, not just the focus and the training, but also the double-side grills and hopefully some breakthroughs with hyphen. I mean do you think you could get back there? Is that the sort of labor productivity that’s possible that you can imagine over the next few years?
John Hartung: It’s theoretically possible. I think the one thing, David, that is different now is labor rates are much, much, much higher. And our menu pricing hasn’t really stayed caught up all the way with the labor over the last few years. And in fact, the biggest move that we made in the second quarter of 2021, we basically raised wages by 15% and only a raised price by 4%. So we basically offset the dollar value of that. We didn’t try to protect the margins and certainly didn’t try to protect the labor line at all. So I think there’s been a bit of a dislocation there. Having said that, we do have a very efficient labor model. We do have a lot of investment in technology. We do have a lot of things that I could see over time as we grow to $3 million volumes and then $3.5 million volumes. And as we really create solutions so that our teams can be more efficient. I think it’s certainly possible. It’s not necessarily a goal of ours, but we could land there someday.
David Palmer: Thank you.
Operator: The next question comes from Lauren Silberman with Credit Suisse. Please go ahead.
Lauren Silberman: Thank you very much. My question is on transaction, great to see the positive transactions in the quarter. Within the mid-single to high single-digit comp guide for the year, what are you embedding for transactions? And what do you see as the most meaningful drivers of positive traffic growth through the rest of the year?
Brian Niccol: Yes. Look, I think the drivers for traffic growth are going to start with Project Square One. We have to have great operational execution. We staff trained, deployed, lines open from open to close and giving people great experiences. So that’s initiative number one, to keep the traffic moving in the right direction. Obviously, doing things with our loyalty program, our CRM database. We continue to talk about how we’re on that journey of continuing to engage with our customers at another level and we’ll continue to invest in there, continue to experiment and continue to execute. And then as I’ve talked about these in our strategies, having the brand visible for what makes Chipotle truly unique its purpose around food with integrity.
That resonates with our customers. It resonates with our team members, because it’s — our employees feel great about the food they’re serving and our customers. This is the food they want to be eating. And a great example of that are just some menu innovation things that we’ve added, right, the Fajita Quesadilla. Right now, we’re doing Chicken Al Pastor. We made the Fajita Quesadilla program permanent. And we’ll continue to do menu news. I think we’ve talked about this one or two a year. So it’s the combination of all those things. that will continue, I think, drive great traffic. And I don’t want to walk past the fact that we continue to have tremendous value scores. When you look at what you get from Chipotle for what you pay relative to your alternatives.
We continue to get feedback that we’re one of the best. And whether you’re comparing to other restaurants in our space or even the grocery store. So we love our value position, and then we love the initiatives that we’ve got in place.
Lauren Silberman: Great. And just a follow-up on traffic. Where is it coming from? Is it primarily your existing customers, new or lapsed customers, anything notable to share in terms of what you’re seeing across income cohorts? Thank you very much.
Brian Niccol: Yes. I mean, formally, it’s broad-based. So we’re seeing new customers come in, and we’re also seeing existing customers increase their frequency. So the operational focus, combined with kind of the marketing and menu innovation is doing exactly what we would want it to do.
Lauren Silberman: Thank you very much.
Operator: The next question comes from Andrew Charles with TD Cowen. Please go ahead.
Andrew Charles: Great. Thanks. Brian, would you be able to talk a little more about what you attribute the sales strength in March and April 2 that exceeded your guidance at the time when the fast casual industry slowed? If you had to tease it out, just — not looking for specific numbers, of course, but just direction of magnitude. Is it the improved staffing, wasn’t Chicken Al Pastor, something else that perhaps externally, we may not be appreciating?
Brian Niccol: Look, I hate to just kind of repeat myself, but I’m going to repeat myself here, which is Project Square One and getting the foundational elements of Chipotle’s execution back to Chipotle standard of excellence. I can’t emphasize enough how important that is to have our digital make line open from open to close to have ingredients on that line from open to close, to being staffed and trained on the front line, so to get people down the line really fast with exactly what they want. I can’t emphasize enough how important that is because everything then builds from there, right? Our digital personalization program builds on that. Our menu innovation builds on that, talking about a brand with purpose builds on that.
And I just think a myriad of things worked really well. The Fajita Quesadilla program was received really well. The Chicken Al Pastor program was received really well. But I know they wouldn’t be as powerful if we didn’t have Project Square One driving behind it. So I think we’ve talked about this a lot, Andrew. One of the things that makes Chipotle really special is its operational ability to achieve tremendous throughput with unbelievable culinary and unbelievable customization. We got to nail that. And we have to nail it both on the front line and in the digital experience.
Andrew Charles: That’s helpful. And one thing I wanted to revisit as well as just the international opportunity. Obviously, a lot of the focus in the last five years has been domestically and recognizing how much strength you guys have domestically, as well as opportunities to further spread the domestic momentum and further enhance the divest momentum, what do you need to see to lean in more on international, whether it’s accelerating development, you’re entering new markets, potentially testing out franchising? I would love your thoughts as we think broader beyond Canada.
Brian Niccol: Yes, sure. Well, I don’t want to just walk by Canada. We’re getting ready to expand into Alberta. We’ll open probably 10-plus restaurants up there, which is like a 50% increase. So not and the team in Canada are doing a fabulous job. We’re going to continue to drive that market. Specifically on Europe, Jim and the team have done a great job. Our U.K. business has got great momentum. Not surprising, there’s a lot of inflation in the P&L there. and we have not priced for it because we think a lot of it is temporary, and we’re still establishing ourselves in those markets. And I’m optimistic because if you can get the top line, usually, the rest worked itself out. And we’re putting in place the digital system, the operational excellence, the great culinary.
So I’m optimistic we’re going to get there where we’ll move this thing out of the stage gate process, but we’re going to take our time, because we want to get it right. We don’t want to just be fast. And that’s what the team is after, and they’re making great progress.
Andrew Charles: Appreciate it. Thanks for the help.
Operator: The next question comes from John Ivankoe with JPMorgan. Please go ahead.
