Chipotle 2012 Annual Report Download - page 31

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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 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. Through our vision of Food With Integrity,
Chipotle is seeking better food from using ingredients that are not only fresh, but that where possible are
sustainably and responsibly grown and raised with respect to the animals, the land, and the farmers who produce
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.
2012 Highlights and Trends
Restaurant Development. As of December 31, 2012, we had 1,410 restaurants, of which 1,399 were located
throughout the United States, five were located in Canada, five were located in London, England, and one was
located in Paris, France. Our restaurants include one ShopHouse Southeast Asian Kitchen, a restaurant serving
Asian-inspired cuisine. New restaurants have contributed substantially to our restaurant sales growth and we
opened 183 restaurants in 2012, and expect to open between 165 and 180 restaurants in 2013, including any new
ShopHouse restaurants.
Sales Growth. Average restaurant sales were $2.113 million as of December 31, 2012, increasing from
$2.013 million as of December 31, 2011. 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 7.1% in 2012. 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 2012 were
driven primarily by an increase in customer visits as well as the impact of menu price increases. We implemented
menu price increases in our Pacific region during the first quarter of both 2012 and 2011, and in our remaining
regions during the summer of 2011, and as a result, menu price increases benefitted comparable restaurant sales
by 2.8% in 2012. Taking into account the loss of the benefit of menu price increases and our recent transaction
trends, as well as ongoing consumer and economic uncertainty, we expect 2013 comparable restaurant sales to be
flat or low single digit increases assuming we do not increase menu prices.
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. In addition, a portion of some of the produce items
we serve is organically grown, or sourced locally when in season (by which we mean within 350 miles of our
restaurant), 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 some of our sour cream is sourced from dairies that provide an even
higher standard of animal welfare by providing outdoor access for their cows. We will continue to search for
quality ingredients that not only taste delicious, but also benefit local farmers or the environment, or otherwise
benefit or improve the sustainability of our supply chain.
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Annual Report