Brian Niccol
Chairman and Chief Executive Officer at Chipotle Mexican Grill
Thanks, Cindy, and good afternoon, everyone. The strength in our business continued into the second quarter, driven by our focus on exceptional food and exceptional people, as well as the success of Chicken al Pastor.
For the quarter, sales grew 14% to reach $2.5 billion, driven by a 7.4% comp. In-restaurant sales increased 16%. Digital sales represented 38% of sales. Restaurant level margin was 27.5%, an increase of 230 basis points year-over-year. Adjusted diluted EPS was $12.65, representing 36% growth over last year. And we opened 47 new restaurants, including 40 Chipotle lanes. For the third quarter, we anticipate comps in the low to mid-single-digit range driven by transaction growth as we are rolling off of pricing. For the full year, we continue to anticipate mid- to high-single-digit comps.
Before reviewing our strategic priorities, I want to share a few organizational updates. As a way of maintaining a healthy growth mindset, we proactively conducted an in-depth review of our business needs and organizational structure to ensure we can deliver on our aggressive growth goals for future growth. This resulted in investments in areas like development, digital marketing and international expansion. At the same time, we also identified areas where we could better optimize our organizational structure such as putting our end-to-end digital experience, including product design, analytics and the customer journey under Curt Garner, our Chief Customer and Technology Officer.
Additionally, we streamlined our strategic project management process to focus on key projects and to enable faster and more efficient decision-making. These changes will further support our five key strategies that will position us to win today while we grow our future, which include, number one, running successful restaurants with the people accountable culture that provides great food with integrity, while delivering exceptional in-restaurant and digital experiences.
Number two, sustaining world-class people leadership by developing and retaining diverse talent at every level. Number three, making the brand visible, relevant and loved to improve overall guest engagement.Number four, amplifying technology and innovation to drive growth and productivity at our restaurants and support centers. And number five, expanding access and convenience by accelerating new restaurant openings and laying the foundation for an international expansion.
Starting with our restaurants. While Project Square One is wrapping up, we have made the decision to permanently embed the program within our training DNA. On a quarterly basis, our crew members will be retrained on key components, ensuring we are always focused on being brilliant at the basics and that we never lose sight of training and developing exceptional people and preparing and serving exceptional food.
Next quarter, we will re-emphasize throughput and elevate our focus on proper deployment standards during peak periods, where we often only have three crew members on the front make line versus our minimum deployment of four. The fourth person, which is often the expediter, may leave the front line to help the digital make line. Our focus will be on coaching the expediter to stay on the front line and to bring together the items in an order and communicate them to the cashier, as alleviating this bottleneck is critical for delivering great throughput.
Additionally, we believe we have an opportunity to better optimize our smarter pickup times and deployment of labor on the digital make line during peak periods. As you may remember, we began testing changes to the cadence of orders on the digital make line in several markets to see if we could improve throughput by eliminating the need to pull a crew member from the front line to help the digital make line. The good news is that in these restaurants, we are seeing an improvement in throughput on the front line and an improvement in on-time on the digital make line.
We will continue to test adjusting the cadence of orders on the digital make line at certain restaurants and roll out where we see the opportunity to improve the overall experience. We remain confident that balancing the deployment between the front and digital make lines, along with continuous training and reps, will further drive improvements in throughput.
In fact, we have seen evidence of this in certain restaurants. I was recently in New York at our Chipotle on 50th and Park, and it was a great experience with delicious food and fast throughput on the front line compared to my experience at this same restaurant exactly a year ago. The improvement in throughput was certainly noticeable as the employment of labor between the front make line and the digital make line was more balanced.
Over the last year, the field leader responsible for this patch of restaurants in New York City worked with the GMs and crew members shoulder to shoulder on throughput fundamentals. During his regular restaurant visits, he also followed up with consistent feedback like reminding his restaurants to have an excellent position during peak periods.
By having the proper deployment with an expo in place and the right balance between the front make line and the digital make line, throughput in his patch of restaurants improved by nearly five entrees in the peak 15 minutes as compared to the prior year. His restaurants are also outcomping his region and the company average, demonstrating throughput drives performance. This is the type of leader we want to develop, one that builds a strong team, runs world-class restaurants, ensures we serve exceptional food every day, and inspires our teams to achieve great results.
And this brings me to our world-class people leadership. As part of our focus on developing our teams, we relaunch Cultivate University for our newly promoted field leaders, which is a three-day training program on the skills they need to truly excel in managing their patch of restaurants. This includes developing future leaders, the foundations of exceptional throughput in culinary, why it's critical to protect our economic model and a culture of accountability.
One of the most challenging transitions is from general manager managing one restaurant, to field leader and managing around eight restaurants. Cultivate University is a program that will be offered each year to support our new field leaders as they make this transition to managing a $20 million business.
We remain committed to hiring and developing the best people to work at Chipotle through our competitive wages, industry-leading benefits and tremendous growth opportunity. In fact, we are on track to surpass our 22,000 promotions from last year and create over 7,000 new jobs with our restaurants anticipated to open in 2023. We're also relaunching our successful and long-running Behind the Foil ad campaign. This campaign provides unfiltered and emotional testimonials from our team members about the impact Chipotle has had on their lives, as well as a glimpse into our daily preparation using our real ingredients and classic culinary techniques, a key differentiator for Chipotle.
What better way to make the brand more visible, more relevant and more loved than to feature our talented restaurant team members preparing exceptional food? And speaking of exceptional food, our menu innovation has been outstanding this year. Chicken al Pastor has proven to be a popular LTO with one in five transactions, including the new protein. It is boosting transactions with a strong repeat and is attracting new customers to Chipotle. It delivered the highest positive social sentiment of any new menu introduction and, importantly, was simple for our teams to execute, which resulted in a win all around. As Chicken al Pastor wraps up in late August, we have a planned new menu item for later in the quarter.
Our rewards program is another way we aim to drive frequency within our existing customer base, as our reward members come more often and spend more than non-rewards members. We launched Freepotle earlier this year, which was designed to deliver a strong value proposition and attract new members with 10 free rewards dropped into our members' accounts throughout the year.
Freepotle has been successful in driving enrollments in the first half of the year as we surpassed 35 million reward members. With each strategic Freepotle drop, we are learning more about our customers' behaviors and utilizing those learnings to personalize future offers. We will continue to look for creative ways to drive enrollment and improve engagement in our rewards program.
In traditional media, we remain top of mind at sporting events as we leverage the basketball playoffs as a high-profile opportunity to spotlight the Chipotle brand, and through our NHL partnership, our Chipotle logo was featured on the ice during the Stanley Cup Playoffs. Additionally, the return of the popular Chipotle Hockey Jersey Bogo Day had the highest participation in the history of the program.
Chipotle's ingredients continue to power many of the top male and female athletes on and off the field. Through our Real Food for Real Athletes campaign, we have showcased the inspiring journeys of athletes across all levels of sports and how Chipotle can help them perform their best by providing proper nutrition. Partnering with athletes and teams along with traditional media around big sporting events has been an authentic and successful way to connect the brand to some of our biggest fans.
Shifting to technology and innovation in our restaurants. First, I wanted to provide an update on the benefits we have seen from the dual-sided grill which we discussed last quarter. The new grill can cook the chicken in under four minutes versus 12 minutes on the plancha and can cook the steak in under one minute versus four minutes on the plancha. This allows for a faster recovery of freshly grilled chicken and steak resulting in more opportunity to remain in stock during peak periods as well as the ability to cook smaller batches, ensuring superior culinary. Additionally, the grill allows for more consistent execution with the same sear and char and maintains better moisture resulting in juicier chicken and steak with less waste.
Finally, it takes one of the most complex positions in our restaurants and significantly improves the learning curve, making it a more desirable role for our teams. The feedback from our guests and our teams continues to be very positive, and we've recently completed the rollout of the dual-sided grill into 10 high volume locations as the next step in the stage gate process.
We also began to do a broader rollout of our new third pan rice cookers, which eliminates our large rice pots and cooks the rice in our third pans that you see on the line. This streamlines the rice cooking process while delivering fresh, high quality rice that's cooked perfectly to our standards. It can also make single batches allowing for a faster recovery time, less waste during non-peak periods and the ability to make white and brown rice at the same time. We have rolled this out to our new restaurants with plans to add it to another 200 existing restaurants this year.
And as part of our Cultivate Next Fund, we recently invested in Vebu, and together we are exploring collaborative robotics that will drive efficiencies and ease pain points for our employees. One device that we are in the process of developing, cuts, cores and peels an avocado, it's called the Autocado. This robotic prototype saves time and eliminates a less favorable task but still allows our teams to hand mash our signature guac. As you can see, all of these initiatives have a common goal, which is to improve the in-restaurant experience for our teams and our guests, while maintaining or improving upon our high culinary standards.
I'm really proud of the work the teams are doing to leverage automation, technology, and artificial intelligence, and it was nice to be recognized as one of Time Magazine's Most Innovative Companies last month.
Our final key strategy is to expand access and convenience. I'm thrilled to share the addition of Stephen Piacentini as our new Chief Development Officer. Stephen has extensive experience of some of the largest restaurant brands and will lead our very talented and tenured development team as we look to reach 7,000 restaurants over time in North America. This year, we continue to target 255 to 285 new restaurants with over 80%, including a Chipotle lane and, in fact, this quarter we opened our 600th Chipotle lane.
In Canada, performance remains strong with 34 locations, and we are on track to add about 10 new restaurants this year. We had our highest opening day ever in Canada this past quarter, which is a testament to the increasing excitement around the brand and our growth opportunity in the country. We also believe there's even more opportunity beyond the 7,000 restaurants we are targeting longer term in North America, and we are laying the foundation for further international growth.
Through our recent reorganization, we added resources to our European operations, including bringing over one of our top U.S. operators to Europe to drive productivity and better align our operations with the U.S. We look forward to continued progress in Europe over the coming quarters as we aim to set up the region for long-term growth.
And finally, we recently announced our first-ever development agreement with the Alshaya Group to open restaurants in the Middle East, which will further accelerate our international efforts. The Alshaya Group has successfully expanded many of the largest global brands into the Middle East, North Africa and Europe, and they plan to open our first restaurants in Kuwait and United Arab Emirates in 2024. We're excited to offer guests in the Middle East our responsibly sourced, classically cooked real food and look forward to furthering our purpose to cultivate a better world in this new territory.
In closing, I want to thank our 114,000 employees for all their hard work to reestablish Chipotle's standards of excellence and culture of accountability. Earlier this month, Chipotle celebrated its 30th anniversary of the opening of the first Chipotle restaurant in Denver, Colorado. What makes Chipotle special and has driven our success over the last 30 years is our people, our purpose of cultivating a better world and our focus on delivering exceptional food.
Our culinary, using the highest quality ingredients and classic cooking techniques, makes our food delicious. Our customization, convenience and speed are differentiators and our value is simply tremendous. This has resulted in an industry-leading brand with industry-leading economics and we still have a long runway for growth. We are well positioned to win today, while we grow our future over the next 30 years.
And with that, I will turn it over to Jack.
