Operator: The next question comes from Dennis Geiger with UBS.
Dennis Geiger: Great. Thank you. Brian, just wanted to follow up on sort of the strength across income cohorts and the strength in the brand’s value scores. Any other commentaries sort of on how you think that the strength in those value scores maybe is having, I don’t know, an outsized impact perhaps on the customer, on traffic that you’re seeing particularly in this environment where we’re hearing about some softness in various parts of the consumer cohort? Any commentary on that based on data that you guys have related to those value scores?
Brian Niccol: Yes, I mean look, I think it’s the thing we’ve always talked about which is relative to, I would say, our peer food offerings, right? So other fast casual folks that have the same, or attempt to have the same quality food as us, now we’re usually 20% to 30% less expensive. And then when you look at some of these other categories where, you traditionally view them as more value and convenience, the price delta that you have to pay in order to get our quality, our convenience, our customization, it’s not that big of a leap up. So I think that’s why we’re positioned really well. If you want to move up, it’s not a crazy leap up. And then when you look across, we’re at a nice value relative to alternatives. So, I think that’s why our value scores are as strong as they are.
And we’re very fortunate that we’ve been able to maintain that through the last couple of years. And, look, that’s why we’re maybe a little bit slower sometimes to take price. But when we took it, we thought it was because now the time was right, inflation wanted to doing it. But we’ve always wanted to do it from a standpoint of protecting our value proposition. And I think we’ve navigated that one pretty well, at least where we are right now. So we’ll see what is in store for us. But I think we’ve talked about this all the time. Maintaining that value is a really important piece of the puzzle for us. And I just love the fact that we’ve got quality, we’ve got value, and we’ve got speed, and we’ve got customization. We’ll protect all those things.
And I think we’re going to continue to do very well in regardless of what the environment is.
Dennis Geiger: That’s great. Thank you. And then just quick, Jack, anything more on mix on kind of looking ahead to ‘24, even at a high level, how to think about the mix component of the check and how that might trend? Thank you.
Jack Hartung: Yes, hard to predict because we’re in kind of an uncharted territory here, I would expect to see a similar kind of mix going forward that the pricing, I already talked about what the pricing will be. And I still think there’s going to be continued adjustment to the group side for the next several quarters. I would expect it to just ratchet down. It’s been ratcheting down over the last several quarters. So I’d expect it to ratchet down from the 150, but hard to predict. I don’t know exactly what quarter will be at base and that we won’t be seeing the group size decline at all. But it’s down to, I think, a very manageable amount, this 150. I think the fact that it’s combined with a 7.4% transaction growth and it’s got very modest pricing, we think it’s a really healthy balance right now.
Operator: The next question comes from Brian Bittner with Oppenheimer & Company.
Brian Bittner: Thanks. On Chipotlane, I mean, you have over 800 Chipotlane in your portfolio now. I think you built a record 238 of these in 2023. So the prototype is really starting to gain some scale here. And so now your learnings are so much deeper on these assets. So can you just update us on maybe the margin profile now of the Chipotlane portfolio, maybe versus the rest of the system? And are we at a point where there’s enough Chipotlane and enough being built in the future where as they continue to increase as a percentage of the business that they can actually have an impact on the overall company’s restaurant margin?
Brian Niccol: Well, they’re already having that impact. But to your point, it’s relatively small because 800 is still, what is that maybe a quarter of our system. But it’s hundreds of basis points of higher margin. If you compare it to our non-Chipotlane, the volumes have actually come pretty close. They’re still a little bit higher for the Chipotlane versus non-Chipotlane, they close the gap a little bit. It was much, much higher during the pandemic. But when you combine volumes that are a little bit higher with margins that are hundreds of base points higher and the investment costs are virtually identical, it’s a much higher return. So from a shareholder value standpoint, as we open up, as we grow from the 3, 400 towards 7, 000, the cash on cash returns we’re getting from, the 80% or 85% of our new restaurants that have Chipotlane is much, much, much higher.
So it does have an accretive impact on our margin. It has an even more meaningful accretive impact on our returns. And you’ll just see it every time we open up new restaurants, you’ll see that our margins are going to, they’re going to continue to expand as long as our existing comp transactions grow and these new restaurants coming out board are just going to add fuel to the fire.
Brian Bittner: Thanks for that. And just a follow-up on labor margins. In the fourth quarter, your labor margins ended up being much better than you had guided to originally. So I’m curious what positively surprised you on that line item. Was it just the higher sales and the flow through from that? And then as we look towards 1Q, you are guiding to some deleverage on the labor line year-over-year. Is that mostly just driven by the softer January or is labor leverage just going to be much more challenging this year as we move forward?
Jack Hartung: Yes, no. Really the thing that happens when you turn the calendar, you have taxes because you have people that are hitting tax levels. So you kind of reset, this happens every year where our tax in Q4 is lower than they step up in Q1. So that’s the only deleverage that you’re saying. The leverage that we saw in the fourth quarter is a couple of things. One, when our volumes do, when our — or comp accelerate, we do leverage that line as we saw leverage on that line. Two, the ops teams did a good job of managing labor. And then the third thing is our teams did a better job of managing through dealing with like sick time and vacation time at the end of the year. That was a little bit of a negative surprise to us the year before, and our team did a much better job this year of just getting ahead of that.
So those are the three contributors, but you should expect that as we grow transactions next year, as long as wage inflation stays relatively benign, we should still continue to be able to delever the labor line.
Operator: And the last questioner today will be Sharon Zackfia with William Blair.
Sharon Zackfia: Hi, just under the wire. I guess I wanted to talk about how your most loyal customers are using Chipotle at this point, maybe if there’s a way to contrast the frequency of those customers versus five years ago when rewards even, didn’t exist or was very nascent. And then by the same token, we kind of talk about how new customers today are entering the Chipotle ecosystem and how they progress in frequency, maybe relative to what you would have seen pre-pandemic?
Brian Niccol: Yes, well, the one thing that definitely is clear is if you’re in the rewards program, you have higher frequency and higher check. And so obviously one of the things we’re trying to do is both existing customers and new customers continue to drive engagement within our rewards program. And so that continues to work really well. I think we’re now like 38 million or almost 40 million people in the program. So that is really powerful. And we didn’t have that five, six, well, I guess seven years ago we didn’t have that. And then when you think about pre-pandemic, one of the things that was kind of interesting is the pandemic kind of helped us move people into the digital system and get them going in the rewards program.
So over and over again, what we see is whether you’re a light, medium, or heavy user, when you’re in the rewards program, you come more frequently and you spend more. And so it’s a really powerful tool. And even when people are redeeming entrees, what we’re seeing is they’re still buying sites. They’re still adding other items. So it’s not just one of these things where when you accrue a free entree, you just show up and walk away with a free entree. So we’re feeling really good about how the rewards program is working with all these different, I guess, frequency users. And then obviously as we continue to, I think, derive the Chipotle message, we’re continuing to track new users. I don’t know if you’ve seen the ads, Sharon, but I think some of the advertising we’re running right now is the best we’ve done.
And I think that’s also helping to bring in new users. And then these new users are experiencing what I think is a great experience, great culinary, great throughput, great customization. So we’ve kind of got the system still early days. I think it could be better, but the system is working. And so we’ll probably never be finished working against making everything better, but the system seems to be working right now.
Sharon Zackfia: Can I ask a follow-up on LTOs? Do those overarch towards kind of improving existing customer frequency, or are they a real driver of new customers coming into Chipotle?
