Chipotle Mexican Grill Class A Earnings Call Nuggets: Year-Over-Year Marketing Charges and Catering

Chipotle Mexican Grill, Inc. Class A (NYSE:CMG) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Year-Over-Year Marketing Charges

Joe Buckley – BofA Merrill Lynch: Could you run through the year-over-year changes in marketing. I got the percent of revenues expectation, but just the number of markets where you will be active this year versus last year, and how are you defining moving towards more transaction driven or traffic driving marketing?

John R. Hartung – CFO: Joe, I’ll clarify in terms of the marketing spend. I think you got that, we do plan to spend more. Historically, we’ve spent about 1.7%, but the last couple of years as we’ve been trying different marketing initiatives, we’ve underspent that amount, last year we spent about 1.3%, next year we do expect to get closer to that 1.7%. But then your other question was about which markets we plan to focus on and where we intend to invest our marketing dollars is that the follow-up to the other question.

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Joe Buckley – BofA Merrill Lynch: Yes. Just if you answer that would be great but just in terms of the percentage of the store base that will be covered by more accurate marketing programs and how you are defining that?

Montgomery F. Moran – Co-CEO: Joe, I think the best way to answer this without getting into a very, very detailed discussion is, we cover all of the restaurants, 100% of the restaurants, but in larger markets where we have got a lot of restaurants and where its efficient to buy media. We will do the full complement of media which we are going to do so with that as Steve mentioned in margin and I think he said 25 of our markets. In those markets we are going to invest in billboards and if its efficient we will do radio, we will do some print as well. We can’t do that in some of our smaller markets or where it’s very expensive to buy the media so in those markets we will do local store marketing. For sure we might do – we also will invest in social media as well. So each of our markets have a unique marketing strategy depending on how many restaurants we have got, how efficient it is buy the media and based on the needs how well our brand is recognized, how loyal the customers are. So our marketing plan is going to customized market by market.

Joe Buckley – BofA Merrill Lynch: How does that 25 markets where you do the full complement to media compare to what you did in 2012?

Montgomery F. Moran – Co-CEO: It’s more. I mean I don’t know off hand. We had done a number of markets this past year but we are going to be doing more of that kind of marketing in 2013. That sure explains – that’s where part of our additional investment from 1.3% to 1.7% is going to be to providing more coverage of that kind of billboards and radio and the like in more of our markets in 2013.

Joe Buckley – BofA Merrill Lynch: The call-to-action, how are you kind of defining that?

John R. Hartung – CFO: Can you say it again, Joe?

Joe Buckley – BofA Merrill Lynch: You’ve indicated that you are going to get more traffic focused with the marketing. I am just curious how you define that versus what you’ve done historically?

Steve Ells – Chairman and Co-CEO: So I think a lot of that has to do with the creative, Joe. In years past, a lot of our marketing or I should say most of our marketing was what we call brand building marketing, which spoke to food with integrity, the quality of the restaurant experience, the way we are different, things like that. Mark and his team have made a conservative effort to actually create devices, for instance in the new short films and shows that are currently under production, the ones that were similar to back to the start have components, which will – can direct people online to get engaged and to take opportunities of going in for some kind of a promotion, buy one, get one something like this. Where in the past, we sort of left that opportunity on the table with back to the start, where there wasn’t a transaction driving the component. So, I think you are going to see more things like that that actually push people into the restaurants rather than just talk about brand building in general.


David Palmer – UBS: With regards to the marketing, is that something that you would use in particular to support Catering for example?

Steve Ells – Chairman and Co-CEO: Catering marketing is going on in Denver as we speak. Certainly that is very much directed at getting people to go into the restaurants and try it, it’s specifically talked about how it works, come in and try it. How – what you can expect the experience to be. So yes that’s definitely marketing that’s getting people to actually go in and place their catering order or place it online.

David Palmer – UBS: I guess, I’m sorry if I interrupted there, but I was just thinking about the marketing and the brand awareness. There is often a phenomenon where certain chains get up to a certain scale in an individual market, and the fact that they get up to that scale itself and that brand awareness just by the number of locations helps the comps. Are you finding that you get up to a certain amount and just adding that extra layer of marketing, and whether it be billboard can keep that above average, market awareness curb going in the right direction is that essentially what you’re doing here in certain developed markets?

Steve Ells – Chairman and Co-CEO: It’s certainly not the main intent of this marketing and catering. The main intent is to introduce people to Catering. I think because it’s so heavily marketed and because this is really new news in a very well developed market. I think you’re going to have the effect of just helping to bring renewed awareness to Chipotle in general. Our hopes would be that, yes that would help drive traffic. I think that will be an offshoot of that.

A Closer Look: Chipotle Mexican Grill Earnings Cheat Sheet>>