Chipotle 2013 Annual Report Download - page 32

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion together with Item 6. “Selected Financial Data” and our
consolidated financial statements and related notes included in Item 8. “Financial Statements and
Supplementary Data.” The discussion contains forward-looking statements involving risks, uncertainties and
assumptions that could cause our results to differ materially from expectations. Factors that might cause such
differences include those described in Item 1A. “Risk Factors” and elsewhere in this report.
Overview
Chipotle operates fresh Mexican food restaurants serving burritos, tacos, burrito bowls (a burrito without the
tortilla) and salads. We began with a simple philosophy: demonstrate that food served fast doesn’t have to be a
traditional “fast-food” experience. We do this by avoiding a formulaic approach when creating our restaurant
experience, looking to fine dining restaurants for inspiration. We use high-quality raw ingredients, classic
cooking methods and distinctive interior design, and have friendly people to take care of each customer—
features that are more frequently found in the world of fine dining. Our approach is also guided by our belief in
an idea we call “Food With Integrity.” Our objective is to find the highest quality ingredients we can—
ingredients that are grown or raised with respect for the environment, animals, and people who grow or raise the
food. A similarly focused people culture, with an emphasis on identifying and empowering top performing
employees, enables us to develop future leaders from within.
2013 Highlights and Trends
Restaurant Development. As of December 31, 2013, we had 1,595 restaurants in operation, including 1,572
Chipotle restaurants throughout the United States, with an additional seven in Canada, six in England, two in
France, and one in Germany. Our restaurants include six ShopHouse Southeast Asian Kitchen restaurants,
serving Asian-inspired cuisine, and we are an investor in a consolidated entity that owns and operates one
Pizzeria Locale, a fast casual pizza concept. New restaurants have contributed substantially to our restaurant
sales growth and we opened 185 restaurants in 2013, and expect to open between 180 and 195 restaurants in
2014, including a small number of ShopHouse and/or Pizzeria Locale restaurants.
Sales Growth. Average restaurant sales were $2.169 million as of December 31, 2013, increasing from
$2.113 million as of December 31, 2012. We define average restaurant sales as the average trailing 12-month
sales for restaurants in operation for at least 12 full calendar months. Our comparable restaurant sales increases
were 5.6% in 2013. Comparable restaurant sales represent the change in period-over-period sales for restaurants
beginning in their 13th full calendar month of operation. Comparable restaurant sales increases in 2013 were
driven primarily by an increase in customer visits. We expect 2014 comparable restaurant sales to be in the low
to mid-single digits assuming we do not increase menu prices. Based on continued food cost inflation, we are
likely to increase menu prices at some point during 2014, most likely the second half of the year.
During 2013, we launched our catering service in Chipotle restaurants throughout the U.S, except New York
City where we expect to introduce catering later in 2014. Catering represented approximately 1% of sales in
markets in which catering was offered during the fourth quarter.
Food With Integrity. In all of our restaurants, we endeavor to serve only meats that were raised without the
use of subtherapeutic antibiotics or added hormones, and in accordance with criteria we’ve established in an
effort to improve sustainability and promote animal welfare. We brand these meats as “Responsibly RaisedTM.”
In addition, a portion of some of the produce items we serve is organically grown, and/or sourced locally when in
season (by which we mean within 350 miles of the restaurant where it is served), and a portion of the beans we
serve is organically grown and a portion is grown using conservation tillage methods that improve soil
conditions, reduce erosion and help preserve the environment in which they are grown. The sour cream and
cheese we buy is made with milk that comes from cows that are not given rBGH. Milk used to make much of our
cheese and our sour cream is sourced from pasture-based dairies that provide an even higher standard of animal
welfare by providing outdoor access for their cows. Further, we disclose on our website which ingredients
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Annual Report