Chipotle 2009 Annual Report Download - page 27

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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 Consolidated 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. Over the years, that vision has evolved. Today, our vision is to change the way
the world thinks about and eats fast food. 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 a 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.
2009 Highlights and Trends
Restaurant Development. As of December 31, 2009, we operated 956 restaurants in 35 states throughout the
United States, the District of Columbia, and Ontario, Canada. New restaurants have contributed substantially to
our restaurant sales growth. We opened 121 restaurants in 2009. We expect to open between 120 and 130
restaurants in 2010, including one in London. Up to 25% of these openings will be what we are calling “A
Model” restaurants. These restaurants will be located in well established markets with high levels of brand
awareness. A Model locations will be built primarily in secondary trade areas which have attractive
demographics but are typically characterized by lower occupancy costs. We expect that A Model locations will
be constructed for substantially lower investment costs and have lower operating expenses than our recent
traditional restaurant openings. While the economic environment has put pressure on the commercial real estate
market and developers, reducing the number of new real estate developments available to us, which have
historically accounted for a majority of our new restaurants, we expect that A Model locations will allow us to
pursue additional opportunities and continue to open 120-130 restaurants next year.
Sales Growth. Our comparable restaurant sales increases were 2.2% in 2009 and were driven primarily by
menu price increases, partially offset by a decrease in customer visits and our average check not increasing by
the full amount of the menu price increases. We believe the decrease in customer visits and impact on our
average check resulted primarily from the adverse macroeconomic environment as well as some customer
reaction to our menu price increases late last year. We generally increase our prices to be at or slightly below
direct competitor pricing for comparable items. Comparable restaurant sales represent the change in period-over-
period sales for restaurants beginning in their 13th full month of operation.
We expect our comparable restaurant sales in 2010 to be flat. As a result of this and normal inflationary
pressures, we anticipate our restaurant operating costs as a percentage of revenue to increase in 2010.
Average restaurant sales were $1.728 million as of December 31, 2009, down from $1.763 million as of
December 31, 2008. We define average restaurant sales as the average trailing 12-month sales for company-
operated restaurants in operation for at least 12 full calendar months.
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Annual Report