Time is Money at Chipotle

We don’t have any soothing words to make you feel better about a period in which rising food and energy prices drive up your operating costs while simultaneously making your customers less able to afford eating out. So let’s take a break from the doom and gloom and look instead at fast casual juggernaut Chipotle’s attempt to solve a happier problem: Lines so long they turn customers off. The possible solution: Handheld point-of-sale (POS) systems the company is now testing in 50 units. Can tech gear like this really improve throughput at busy restaurants?

Any chain restaurant company would envy the kind of numbers Chipotle put up in the first quarter of 2008. Same-store comp sales rose 10.2 percent, revenue went up 27.3 percent and earnings per share rose 37 percent. These are blowout results, but the Wall Street analysts who track Chipotle will expect even bigger numbers next year at this time. If you’re in charge of Chipotle, it’s your job to position the company now to produce similar growth in 2009.

What’s the plan? Chipotle has plenty of customers. It has to figure out how to take their money faster. At many units, lines are sensationally long at lunch (and sometimes during other dayparts). Chipotle thinks that if it equips an experienced employee with a handheld POS and sends him or her out to ring up sales while customers are shuffling through a slow-moving line, overall unit throughput will increase. If you’ve ever seen a Chipotle unit operating at full throttle, you know how serious the line problem can be.

Here’s how Chipotle founder Steve Ells sees it. He told analysts on a conference call last year that line management was a key issue going forward, and that the handheld POS unit will help break the logjams.

“Most of the people in those lines know exactly what they are going to order and they also have a credit card,” Ells said back in November. “With the handheld unit, we take care of that problem before they ever start the ordering process. Then once they get to serving line, they order as they normally would picking and choosing among all our ingredients. Once they finish doing that and their order is ready, then they are free to go have a seat. They eliminate that usual 18 to 22 seconds POS experience, which is not adding anything beneficial to the overall dining experience.

“We think it’s going to provide a lot better customer experience, especially during those busy crunch hours during lunch.”

So the idea going in was that the handheld POS system would allow Chipotle staffers to ring up customers while they are standing in line. Eighteen to 22 seconds per customer may not seem like much, but shaving that amount of time off each customer’s trip along the Chipotle counter should really add up. Wait times during busy period should decrease, and the number of customers who can be served during peak lunch hours would increase. Successful implementation of handheld POS systems would allow busy Chipotle units to grow revenue even during their most maxed-out periods.

That’s the theory. How’s it work in practice?

Monty Moran, president and chief operating officer of Chipotle Mexican Grill, says they’re still working out the kinks.

“Let me put it this way,” he told financial analysts on the company’s late April conference call. “Basically it’s too early to tell what the benefit is and that’s because we’ve had some technological glitches with getting the handheld set up in a number of stores. There’s also been a little bit more of a lag time in getting the employees trained to use it,” he added.

But the early indications are that this approach will work. “It’s taken a little longer than we thought and, also, a lot of these 50 units have just recently reached restaurants. But at a few of our restaurants, we’ve had the handheld in place for a longer time and they’ve really mastered it,” Moran said. “We do think that when it’s fully up and rolling… we are going to see an increase again just during our very peak times. You really can’t use the handheld device unless you have a fairly significant line because otherwise what ends up happening is the person using the handheld device is interfering with the flow of the customers as they reach the tortilla station and begin ordering. So you have to be careful not to let it actually throw a monkey wrench in your operation. We are very optimistic that it will end up having a positive affect on throughput; but we are even more optimistic that the thing is just going to be good in general.”

Which is to say, in Chipotle’s case, there are benefits that go far beyond faster throughput. Moran said that the increase in customer interaction is a plus, as is the fact that customers can see that Chipotle is doing what it can to keep the line moving.

But Moran was speaking to Wall Street types. What they really wanted to know was: Given the current economy, will there still be long lines at Chipotle?

“Yes, in our highest volume stores.” Moran predicts. “The top 20 percent of our stores have significant lines at lunch—lines which our customers report sometimes being intimidated by.”

Many Chipotle units see that same effect at dinner, too. “They have significant lines and our throughput at dinner is still much, much, much slower. I mean on the order of half as fast as it is during our lunch hour. That’s because of a lot of families, more children, multiple orders and perhaps just a more patient customer to some degree. So we think that there is room for improvement not only at lunch but also at dinner.

“A couple of our regional directors have told me that they think that the handheld has real potential at dinner time because you do have the time to spend the time with the family, with children who might not be very decisive to help them make up their mind and have the luxury of doing that without slowing down the main line,” Moran pointed out.

“So when a group comes up and has a six or seven or eight burrito order, that person can very politely say, ‘hey you know what, let me take you over to the register and let’s get this made on our second make line for you.’ And they can literally pull that gang right out of the line, shorten the main line by eight people right away and give a great personalized customer experience to the people with the large orders.”

The lesson here for Chipotle investors is that it looks like the current good times will continue to roll. Or at least that’s what top management is telling the brokerage house analysts.

But there’s potential good news for the chain’s fellow restaurant operators, too. One is that handheld POS systems can help speed up anyone’s service sequence, even when a restaurant is as maxed out as some Chipotle units are. A second is that as the ever-expanding customer base at Chipotle becomes accustomed to handing over a credit card to a restaurant employee equipped with a handheld POS unit, those customers will likely welcome and even expect other restaurants to offer this option as well.

Whether you want to make your line move more quickly or turn your tables faster on busy nights, keep an eye on Chipotle’s handheld POS experiment. It’s working out a lot of the kinks for you.