Danilo Gargiulo: Thank you. First of all, a quick clarification in light of your comments on the Chipotlane. So I’m assuming that the 40% flow through is the average in your system. So are you seeing any mixed benefits in the 40% as you’re getting more and more stores which Chipotlanes any new trade areas? So could we be talking about 42%, 43% flow through in the near future?
Jack Hartung: Yes, that’s correct, Danilo. In a Chipotlane, the margins are better and then the incremental margins are better. So you should see a few ticks up when we have incremental transactions in Chipotlane definitely.
Danilo Gargiulo: Great. And then with potential increase in value offerings from some of your large peers, do you think that the industry is moving toward more elevated level of promotional intensity to attract and retain traffic? And if so, are you expecting Chipotle to be able to leverage the same pricing power that they did last year?
Brian Niccol: What we center on is providing a great experience. And what we’ve seen is that results in superior value. And unfortunately, we aren’t doing it through price promotion, rather we’re doing it through great culinary, lots of customization, terrific speed. And that’s where our value for the consumer really shines through. And then given the scale that we have, we’re able to buy ingredients and provide people with a clean eating experience that frankly you can’t get anywhere else for the price at which we charge it. So very affordable, very customizable, super high quality is resulting in really strong value scores from consumers. And then when we look at our relative price position to competitors, right now we’re anywhere from 15% to 30% discount on an everyday standard.
It’s also kind of interesting that the team did just to kind of dimensionalize this. They took a look at 18 to 34 year olds that actually have student debt. And what we found is Chipotle was the best value proposition among that universe. So one of the things we’re seeing is whatever situation you’re in, whether it’s low income, higher income with some student debt, we continue to be a strong value proposition, regardless where you look across the consumer segments.
Danilo Gargiulo: Makes sense. Thank you.
Operator: Our next question comes from Jeffrey Bernstein with Barclays. Please go ahead.
Jeff Bernstein: Great. Thank you. Two questions. First, Brian, I’m sure you’re getting this question periodically. I think I saw some headlines on CNBC earlier about it. But just the topic of anti-obesity drugs as a headwind, I think you had mentioned that you’re not seeing anything to date. But it would seem like you’re perhaps more vulnerable than others, just because maybe you have a slightly higher income cohort. I’m just wondering how you assess whether there was any impact or what you might do differently if that was a future headwind, maybe get a heading of it with focus on a healthier offering that we know you have. Just how you think about how it’s being impacted and how you would respond? And then I had one follow up?
Brian Niccol: Sure. So yes, that’s right. We’ve not seen any material impact from it. And as I understand the drug and when I’ve spoken to people that know a whole lot more about the drug than I do, our food is a good solution. Because it’s clean, it’s not fried. It allows people then to customize meal that would fit their diet that they’re trying to achieve, whether they’re on GLP-1 drugs or whether they’re on a keto diet or a Whole30 diet or insert the lifestyle diet that they’re on, or the lifestyle drug that they might be on, the good news is we’re positioned to be able to customize that diet for you with clean food done in a very healthy way. So longer term, I think we’re positioned really well. We’ll see how this continues to unfold. But today, we’ve seen no real impact. And the best thing we can do is make sure that we stay committed to food with integrity and providing those customized solutions at speed.
Jeff Bernstein: Got it. And then, Jack, just in terms of the fourth quarter or maybe more importantly looking to 2024, your commodity and labor inflation, what’s kind of the forecast you’re assuming when you talk about kind of approaching that 27% restaurant margin? I know you talked about how California labor loan is 250 to 300 basis points, but just wondering what assumption you have for inflation on commodities and labor for next year? Thank you.
Jack Hartung: Yes. Jeff, you know that’s predicting anything, especially inflation in the last few years has been very, very difficult. Right now, it looks like inflation is settling for both our ingredients and for labor in that call it 3%-ish, maybe between 3% and 4%, something like that. That’s a very normal environment. If it stays at that 3% to 4% range, I think that’s just fine. We can operate very effectively in that environment. Would we be able to get all the way to 27% without taking any additional pricing? That’d be tough unless our transactions accelerate, and we can leverage — throw some more leverage along our fixed line items. But if it’s in that 3% to 4% range, we just took a 3% price increase, I think we’ll be just fine.
But if it continues at a higher level, obviously, that’d be a little tougher. But anyway, if it ends up in that 3% to 4% range and people keep their jobs and people still want to dine out, we’d like our chances that they’ll keep coming to Chipotle, especially based on the most recent trends that we’ve seen.
Jeff Bernstein: Thank you.
Operator: Our final question comes from Peter Saleh with BTIG. Please go ahead.
Peter Saleh: Great. Thanks for taking the question. Brian, I want to come back to your comments on the Hyphen make line. I think you said it increases capacity, better accuracy and better speed. What are the challenges and some of the hurdles that you think you need to overcome at this point to move it to the next stage and the stage gate process?
Brian Niccol: Yes, so thanks for the question. So we had our first prototype at our Cultivate Center. And the team did a great job of kind of pressure testing all aspects of it. We learned a lot, right? There’s work to be done on how you expo things, there’s work to be done on how you clean it, there’s work to be done on how we actually provide portions. And the good news is this is why we use the stage gate process so that we learn, we iterate and then hopefully we get to a faster solution. So I’m excited to see what the next prototype holds. But the team is working on some of those key things that we learned on. But yes, look, all signs are really promising that as we continue to work on this in the stage gate, what we’re after is accuracy, speed and then the ability for the team member to execute this both at the expo station and then keep it clean and food safe.
So we’re working through those things. But for a very first prototype, the team did a great job. And I loved everybody’s passion to learn so that we get to an even better second generation prototype.
