Chipotle is testing an autonomous kitchen assistant, Chippy, which offers a robotic solution for making fries in restaurants.
The long lunchtime lines at the Chipotle Mexican Grill waiting to order might serve as a good metaphor for Chipotle’s approach to investing in innovation: although you might have to wait for a Little to get results, the taco and burrito brand is driving technology around the world that’s set to change the way restaurants operate and diners think about food.
It’s not exactly a new sentiment from the company. CTO Curt Garner notes that Uber-inspired Chipotle first went digital in 2016 with its app, then quickly built space in each of its restaurants so employees wouldn’t never have to choose between serving customers standing in front of them or those who ordered digitally. But investing in world-changing innovation took on new meaning for Chipotle in April when it launched Cultivate Next, its $50 million venture capital fund aimed at easing margin-squeezing pressures in the manufacturing industry. catering, tackling challenges from labor shortages to rising food costs and customers spending more time eating in their stores.
“We’re thinking about how to grow and scale the business through many lenses,” Garner said, noting that the fund represents an opportunity for Chipotle to scale from simply adapting to technological change to inception. “There’s growing restaurants, there’s growing and scaling our digital business and there’s also continuing the mission to cultivate a better world and change the way people think about life. ‘where does their food come from.’
Chipotle’s new venture capital fund could be a beacon for investors as the restaurant industry continues to struggle against significant economic headwinds. Analysts will be looking for concrete examples of Garner’s first two points — new technology that promises to streamline and expand Chipotle’s operations — when Chipotle releases its second-quarter results on July 26.
Chipotle has generally seen positive growth numbers since 2016, when the chain was dealing with food safety issues — it saw double-digit system-wide sales growth between 2017 and 2020, according to Morningstar. But he’s not immune to today’s general market downturn. While consensus estimates call for Chipotle to post second-quarter revenue of $2.24 billion, up nearly 19% year-over-year, and quarterly profit of $9.04 per share, up 21%, its stock is down more than 20% since the start of the year.
“The problem is on the margin side,” said Sean Dunlop, equity analyst at Morningstar.
While Chipotle and the restaurant sector have seen a slight slowdown in same-store sales growth, rising food, labor and utility costs, combined with a trend for consumers to less venturing out of home, “pinches Chipotle’s P&L,” Dunlop said, noting the pressure will likely last through 2024. Owner-operated chains like Chipotle and Starbucks could also fare worse than franchise businesses because “they bear all of these below-line costs themselves,” he added.
Another potential obstacle for Chipotle’s actions: the unionization of workers. In early June, a Chipotle Mexican Grill store in Augusta, Maine filed a petition for a union election, the first of the chain’s restaurants to join the recent organizing drive across the United States that swept businesses from Apple to Starbucks.
A self-driving delivery robot provided the spark
Like all other venture capitalists, Chipotle is looking to get in on the ground floor of start-ups developing breakthrough technology. On the same subject : Why you might see more travel fees this summer. Unlike typical venture capital firms, Chipotle does not seek a specific return on investment over a specific time period.
“Success for us is multifaceted,” Garner said. “This is a chance for us to improve our operations and that improvement could become more significant than what we would get in terms of strict financial returns on capital.”
The notion of a venture capital fund emerged last year after Chipotle invested in Nuro, a SoftBank-backed startup that uses self-driving technology, in Priuses and custom vehicles, to deliver groceries. and other goods.
Domino’s is testing Nuro, an autonomous pizza delivery car in Houston.
“We found a lot of traction there in terms of synergies of culture, ideas and innovation and wondered if there was an opportunity to expand our influence and become an accelerator of these ideas,” said said Garner on the Silicon Valley-themed Sand Hill Road podcast. in May. Chipotle’s management team found themselves pitching all sorts of ideas, but had no formal funnel to sift through opportunities as a supplier or partner, Garner said.
Record investment in restaurant technology – including hardware and software for restaurant management, reservations, staffing, mobile payments and inventory management – reached more than $4 billion in 2021 , and he’s on track to beat that this year. Hundreds of companies have expressed interest in Chipotle’s first round, which targets seed funds to Series B startups.
Garner said Chipotle will announce its top picks in the coming weeks. Industry watchers say they expect Chipotle’s money to follow weak spots in the industry.
“After the pandemic, many people are investing to modernize and improve the customer experience and are doing things to reduce labor costs,” said Eric Symon, vice president of the Enterprise Process Innovation Center at Panasonic System Solutions. Company of North America.
Symon sees a demand for solutions like Panasonic’s temperature-controlled smart food lockers that deter take-out theft and mix-ups, tying up employees who have to re-order. He also sees a demand for artificial intelligence applications to help restaurant managers predict peak times of the day so they can better equip their stores.
To that end, Chipotle has already invested in an AI-based workforce management tool that analyzes dozens of variables such as weather and available promotions to determine more efficient restaurant staffing. . It is also rolling out an AI-powered training program, which helps restaurant workers rise through the ranks to management.
The labor of an automated tortilla chip maker
As for the kind of innovation Chipotle seeks to foster, Garner nods to Chippy, a robotic tortilla chip maker that saves time and labor costs by managing repetitive kitchen tasks. Read also : Portland’s real estate market is grabbing wealth from wealthy families in other states.
“It started with ‘how can we take away some of the sadness of a worker standing in front of the fryer and frying basket of fries after basket of fries? ‘” Garner said, noting that Chippy will be flown to a Chipotle location later this year once it becomes certified food safe. “It allows our team to spend more time doing culinary tests, serving guests.”
Chippy could help Chipotle deal with the industry’s labor shortage, but ultimately what the company is aiming for with its venture capital fund is to change global food systems. .
“When you think about the environmental opportunities for how food is purchased and how it’s served, those are huge areas where technology needs to be accelerated and enabled,” Garner said, specifically highlighting agriculture-focused techniques. environment from Europe. “Customers want to understand where their food comes from and feel good about what they’re buying.”
Purchasing sustainable farming practices will allow quick-service restaurant brands to have better ingredient prices, guaranteed supply and the ability to offer customers something unique from competitors, said Sanjeev Krishnan, Chief Investment Officer at S2G Ventures, a 9-year-old company. fund dedicated to supporting sustainable and healthy food systems.
“More interesting is that these quick service restaurants can bring an era of biodiversity into our food system – ours is boring,” Krishnan said. “Just 15 crop plants provide 90% of the world’s dietary energy intake, of which three – rice, maize and wheat – account for two-thirds,” he added.
Investments in non-meat protein products have skyrocketed in recent years, with Chipotle, McDonald’s, Burger King and Dunkin all recently testing hamburger and sausage substitutes on their menus. Many brands are expanding plant-based experimentation into other product categories, and PitchBook Data is tracking venture capital funding in a new category: 3D bioprinting, which involves printing living cells, growth factors and other biomaterials to produce whole cut cultured meat, according to the company’s Q1. Food Technology Report. 3D food printer companies secured $185.7 million in venture capital funding last year, he said.
According to Dunlop, when it comes to investing in high-risk, emerging technologies, it can be helpful to think of Chipotle’s role akin to the R&D costs of other companies.
“Nothing is off the table,” Garner said. “One of the things that [CEO Brian Niccol] has brought to our culture is this idea that we take great pride in what we do and very little ego. We can be proud of what we’ve done – like the chorizo plants – but if anyone has a great idea, we want to hear it.”
