Chipotle Mexican Grill (CMG) has expanded its use of automation by introducing an automated bowl-and-salad maker and an avocado-processing robot at two locations in California. With the rollout of this technology, the Mexican fast-food chain aims to test the efficiency of automating certain restaurant processes and look at customer feedback before implementing it broadly.
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CMG’s Tech Accelerates Avocado Cutting and Bowl Prep
Chipotle’s “augmented makeline” automates the preparation of bowls and salads, which comprise 65% of CMG’s digital orders. Meanwhile, the “autocado,” a machine developed in partnership with startup Vebu, cuts, cores, and peels avocados in 26 seconds. It’s currently being tested at Chipotle’s Huntington Beach location, where Chipotle handles over 5 million cases of avocados annually.
Although Chipotle previously tested a seasoned tortilla chip-making robot called “Chippy,” high setup and clean-up costs outweighed its labor savings.
CMG Grapples with Rising Labor Expenses
Many restaurant chains are grappling with higher wages amid a difficult macro environment. In fact, CMG’s management had stated on its Fiscal Q2 earnings call, that in the third quarter, it expects wage inflation to stay at 6% with labor costs likely to be in the “low 25% range due to seasonally lower sales.”
Furthermore, the restaurant chain added that more than 50% of its wage inflation in the second quarter was due to the 20% hike in wages in California that came into effect in April this year. This wage hike came into effect due to the rise in minimum wages in that state.
To manage these escalating costs, CMG might be testing automation in some California locations as a possible solution to the increasing burden of rising labor expenses.
Is CMG a Buy or Sell?
Analysts remain cautiously optimistic about CMG stock, with a Moderate Buy consensus rating based on 17 Buys and eight Holds. Over the past year, CMG has surged by more than 45%, and the average CMG price target of $62.67 implies an upside potential of 8.7% from current levels.
