Greetings, welcome to Chipotle Mexican Grill, Inc. special investor call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Today's presentation contains two videos. Audio during these videos will only be heard over the webcast and not over the telephone. Those listening via the phone will only experience silence during this time. When the video is launched during the presentation, if it does not begin to play automatically, please click the play button. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Coralie Witter from Chipotle.
Hello, everyone, welcome to our call today. Before we begin our presentation, I will remind everyone that parts of our discussion today will include forward-looking statements as defined in the securities laws. These forward-looking statements will include statements regarding our strategy and initiatives to build sales and the expected sales opportunity represented by digital channels, statements about our unit economics, information relating to the anticipated restaurant closures, information relating to anticipated one-time costs and restructuring charges, and statements regarding our future sales potential, as well as other statements of our expectations and plans. These statements are based on information available to us today, we are not assuming any obligation to update them. Forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements.
We refer you to the risk factors in our annual report on Form 10-K, as updated in our subsequent Form 10-Q, for discussion of these risks. I'd also like to remind everyone that we will not be providing any updates to our Q2 results to date or to our guidance. We have adopted a self-imposed quiet period that is in place following this call, restricting communications with investors until our Q2 earnings release, scheduled for July 26th. We will start today's call with some prepared remarks from Brian Niccol, Chief Executive Officer, Marissa Andrada, Chief HR Officer, Chris Brandt, Chief Marketing Officer, and Jack Hartung, Chief Financial Officer. We will allow plenty of time at the end of those remarks for questions.
In the room and also available during the Q&A period are Scott Boatwright, Chief Restaurant Officer, Curt Garner, Chief Digital and Information Officer, and Laurie Schalow, Chief Communications Officer. Before I turn the call over to Brian, I want to mention that the slides that will be shown during the webcast are also available on our website at chipotle.com in the investor relations section. As a usability note, if you are accessing the webcast via a Chrome browser, you will need to hit the play button when the slides appear on the webcast, as the videos will not autoload. With that, I'll turn it over to Brian.
Thanks, Coralie, and thanks to all of you joining us this afternoon and for your interest in Chipotle. As Coralie mentioned, we will not be talking about Q2 results today. Instead, we will focus on our near-term and long-term strategy. I will tell you that we are pleased with the underlying sales trends we are seeing, as the sales trends from Q1 have continued into Q2. We are confident that the strategy we will talk about today can accelerate our future growth. Our vision at Chipotle is to win today and cultivate a better future, and we will achieve that vision with a clear strategy, strong supporting structure, and a new culture. Specifically, today, we will talk about five focus areas that will drive sales and transactions as part of our growth turnaround. Number one, becoming a more culturally relevant and engaging brand that builds love and loyalty.
Number two, digitizing and modernizing our restaurant experience that creates a more convenient and enjoyable guest experience. Number three, running great restaurants with great hospitality and throughput. Number four, being disciplined and focused to enhance our powerful economic model. Number five, building a great culture that can innovate and execute across digital, access, menu, and the restaurant experience. Before we dive deeper into those five focus areas, let me first share with you what I've learned about Chipotle since joining three months ago. A state of the union, if you will. First, I found a number of positives. As I mentioned in April, I've seen that consumers really love our brand. We can build on that and continue to create more distance between us and others.
We don't believe anyone else has the quality of ingredients that drives great taste like we have, now our marketing will lean into that to increase awareness and remind customers why they fell in love with Chipotle. We also have an excellent value proposition that we can enhance across all day parts. Our new restaurant economics today are very strong. We have built a solid foundation and made progress in digital that we expect to accelerate in the coming months. Our second make line is a significant competitive advantage that enables throughput and efficiency that enhances our economic model going forward. Finally, I'm very proud of the passionate people we have working in or supporting our roughly 2,500 restaurants that are responding enthusiastically to our new strategy. However, I also found that we have some gaps that we are actively addressing.
There was a lack of discipline around priorities, process, and accountability, we were not sufficiently results-focused, which made us reactive and hampered execution. I found skills gaps in many areas and insufficient data for decision-making that have held us back from reaching our potential. There was no validated menu innovation pipeline, a general lack of customer understanding, and no real process for scaling and commercializing innovation. As you've heard me say before, the brand had been silent and lost some of its cultural relevance. I found that our marketing dollars had been inefficiently allocated, we are working quickly to correct that. Lastly, in our restaurants, our throughput remains below potential, we need to move consumers through the line more quickly and deploy technology to help us do that. I'm happy to report that all of this is changing.
Organizationally, we are adding experienced professional talent in many areas, including marketing, menu, digital, analytics, and human resources. Our leaders will provide clear direction, and roles will have defined accountabilities. We will invest in areas core to our strategy and be scrappy in looking for efficiency opportunities to fund our investments. For example, we have flattened the organization with the removal of layers, which when combined with clearer roles and responsibilities, will speed up decision-making and drive better results. We are putting in place a clear governance structure for the organization to enable efficient execution. Importantly, we will build muscle around innovation by establishing a stage gate process where we test, learn, and iterate, so that when we roll out a new initiative, we are highly confident in the probabilities of success.
Overall, we will transform into a learning organization that is decisive and one that constantly iterates to achieve our core objectives. To give you a concrete example of what I'm talking about, I'd like to tell you about our new digital pickup shelves, which you can see on your screen. While the app experience that was rolled out late last year is best in class, in many of our restaurants, it is unclear to our customers where to pick up that order, which detracts from the experience. In our downtown Denver restaurant, we cut a window into our wall near the kitchen door, not far from the register, and put a digital pickup sign above it. That simple change caused a double-digit increase in our digital sales within the first few weeks, and it sustained.
Not only did it provide a significantly faster and more convenient mobile order and pickup experience, it served as in-store marketing that raised awareness among our customers standing in line. This is a big opportunity across all of our restaurants because over half of our customers aren't even aware that you can order ahead for pickup at Chipotle. We looked into adding windows in all restaurants, but quickly realized that with permitting and other issues, it'd just take too long to roll out. We hypothesized that we could get the same benefit with self-serve shelves and a sign overhead and get them rolled out much faster and more cost-effective. We have digital pickup shelf prototypes in a handful of restaurants as we speak and expect to expand to another test market this summer.
These shelves unlock the power of our second make line and accelerate our digital sales flywheel to drive more mobile and delivery orders and more group orders. In addition to increasing peak capacity in our restaurants by providing a relief valve for our very busy customer-facing service line. This is just one great example. What else is changing at Chipotle? We will make the brand more engaging, more visible, and more culturally relevant. In our restaurants, we will provide a great experience with great hospitality, food cooked to perfection, with convenience, enhancing fast throughput. Importantly, we will lean into the strengths we have, namely our 70,000 employees that are passionate, committed, and working hard to make Chipotle better. Our great tasting, classically cooked food made from real ingredients, our strong value proposition, our brand equity, and our efficient and effective digitized second make line.
We have a lot of work to do to win today and cultivate a better future. While I could not be more excited about the future of Chipotle, it is important to be patient and recognize that people and process changes don't happen overnight. We need to add talent, build and create muscle memory around processes and testing capabilities, and upgrade our enabling tools and technology. While we're doing that, we're focusing on the singles and doubles that can create short-term sales and transaction momentum while we build capabilities behind larger opportunities. Looking at our team, we are fortunate that Curt Garner started building improved digital capabilities when he joined two years ago. We are now enjoying some of the fruits of those efforts with digital sales at just under 9% in the first quarter.
We have the ability to lean more heavily into our digital initiatives to drive further growth, as I'll describe later. We are also fortunate that Scott Boatwright began restructuring the field organization last fall and is completing the final stages of this process. Additionally, we're investing in training to consistently deliver an outstanding guest experience, investing in our facilities to improve the appearance of our restaurants, and in modernizing the tools our restaurants need to enable faster throughput, better efficiency, and a better team experience in our restaurants. I'll turn it over to Marissa, our new Chief Human Resources Officer.
Thanks, Brian. I am personally delighted to be part of Chipotle and to support our over 70,000 employees. It's great to be here today with you on the call. We're excited about this unique opportunity to build a dynamic culture and lead Chipotle on its next, and what we truly believe will be its most rewarding chapter. It's no secret that we're successful because of our people. We will deliver our strategy through a people and culture transformation. We will modernize the structure, build organizational capability, elevate our talent, and leverage technology to provide our restaurants with world-class service levels from our support centers in Newport Beach and Columbus. We are starting the creation of an organizational structure that we believe will allow us to best execute our strategy.
As announced, this includes a reorganization where we will leverage technology to improve processes and align our work within our Newport Beach and Columbus support centers with a structure that will provide world-class service levels to our restaurants. We'll streamline our structure to eliminate two layers to stay nimble and agile as we grow, allowing us to reinvest in new capabilities and skills. It's our firm belief that the way to grow a company and to bring a brand to life is to grow its people. We're building and bringing in new capabilities across the organization, including in marketing, menu, digital, analytics, and human resources. Key aspects of our strategy are attracting, developing, and inspiring best-in-class talent and cultivating an environment that inspires mutual learning and development. We will grow Chipotle by growing people.
As part of our cultural DNA, we will codify our values to inspire curiosity, creativity, and innovation. Our employee experience will be the foundation for our customer experience.
Thanks, Marissa. We are happy to have you on the team. I'll take a moment to elaborate on the priorities that will be visible to our guests. Running great restaurants, modernizing and digitizing our restaurants, and becoming a more relevant and engaging brand. I've already discussed the roadmap that Scott Boatwright is executing to run our great restaurants. When we talk about modernizing and digitizing our restaurant, it means making it easier to access Chipotle. We want our guests to enjoy Chipotle whatever way is most convenient for them, whether it be through ordering and paying digitally ahead of time, through delivery, or via group ordering options. Our digital sales are fast approaching half a billion dollars with very little marketing support. We believe that by increasing awareness of our mobile order-ahead feature and improving the in-store experience, we can accelerate the rate of digital sales growth.
Our digitized second make line has the capacity to handle significant increases in volume. Over time, we think this can be a multi-billion dollar opportunity. I mentioned earlier the digital pickup shelves that we are testing can help unlock the potential of our digitized second make line. For those of you that are new to Chipotle, our second make line is a second production line in the back of our restaurant that looks and functions just like our front service line. We are now in the process of digitizing those second make lines, as you can see on your screen.
What that means is that instead of reading small fonts on paper receipts to assemble our orders, our crew now has two flat screens above the line with pictures that mirror the placement of the food on the line and lights up just the bins required to assemble an order. This results in much better throughput, greater capacity to build digital sales, and even more importantly for our customers, much better accuracy. Delivery is a significant opportunity for us that also leverages the production capacity of our second make line. In April, we added DoorDash as a new partner, and we continue to expand the number of restaurants that all of our partners can deliver from. Our delivery business previously has been built with virtually no marketing.
We learned this quarter through joint efforts with both DoorDash and Postmates that we can accelerate delivery growth simply through greater awareness and best-in-class delivery times. Later this summer, we will add delivery capabilities to our app so that the fastest way to deliver Chipotle to your chair is only a few clicks away. We will also continue to increase access by making group occasions more convenient for small and large groups alike. Let's talk more about our great Chipotle brand. Being a relevant brand starts with insightful consumer understanding. We are investing in foundational customer research right now, and this will help us refine our innovation strategies around marketing, digital, access, menu, and restaurants. We'll have conclusions from that research this fall, but some of the early qualitative findings are encouraging.
Namely, that our commitment to Food With Integrity is a key point of difference. Our customers feel good about our delicious food. We will build on the customer understanding that we are gaining with CRM capabilities. We will test a loyalty program that leverages those insights in the second half of this year, leading to a planned national launch in 2019. Our loyalty program will give us a currency with which to incent and reward trial and new behaviors. We're also increasing our brand relevance by adding new occasions which our loyalty currency can support. The good news is that we have no value issue with our burritos, bowls, and tacos. We can build on that strength and get people excited about snacking day parts.
For example, we are exploring a happy hour offering that enhances our value proposition during non-peak snacking hours with $2 tacos with a drink between 2:00 P.M. and 5:00 P.M. We're also exploring a similar offer for increased late-night sales after 8:00 P.M. Another way to be more relevant to our consumers is with excitement around our menu. We think about menu innovation in four key ways. number 1, what our customers tell us they want, like nachos and quesadillas we're experimenting with in a test kitchen. number 2, items our customers tell us they want us to bring back, like chorizo. number 3, new items that can be unique to Chipotle, like the frozen Mexican chocolate milkshake and the avocado tostada that are also in the test kitchen. Finally, number 4, celebrating existing items that are already in our restaurants.
For example, many people don't know we have Sofritas or what Sofritas is. It's a great-tasting organic tofu cooked with our Adobo blend for delicious vegetarian choice. The goal is to thoughtfully add delicious menu items that drive incrementality, are operationally easy to execute, and enhance our ability to drive great throughput. We need to build capabilities in this area and build a pipeline utilizing a stage gate process. You'll begin to see more tests in the second half of this year, and you can expect relevant menu news in the coming quarters. Finally, we are changing the cultural narrative around our brand. We know we can drive growth by putting more effective and relevant marketing behind our innovative initiatives and by reminding people why they love Chipotle. Being culturally relevant means being present in sports, fashion, technology, and entertainment.
I'll turn it over to Chris Brandt, our new Chief Marketing Officer, to elaborate on how he's positioning Chipotle to be more engaging and more culturally relevant.
Thanks, Brian. Before I talk about some of the early progress we've made, I just want to say I'm thrilled to be a part of Chipotle. It's early days for me, but I've never seen a brand that has more purpose and more passion than Chipotle. Cultivate a Better World isn't just a slogan on a wall. It lives in the hearts of our employees and their pride in serving people responsibly sourced, classically cooked, delicious food you feel good about eating. Many consumers feel that same passion as well. There is such a unique emotional component to this brand stemming from its authenticity and transparency about food that we need to reinforce and reignite. To that end, our ultimate marketing mission is to make Chipotle not just a food brand, but a purpose-driven lifestyle brand. What do I mean by that?
Chipotle will become a brand that people want to know about, want to be a part of, and want to wear as a badge. I genuinely believe that Chipotle can transcend the food category, separate itself from everyone else, and be a category of one, because there are no compromises with Chipotle. No one has such great tasting food that you feel good about eating like we do. To accomplish that mission of making Chipotle a lifestyle brand, we need to change our approach and evolve our marketing philosophy and our tactics. We need to strike a balance of traffic-driving short-term wins and long-term growth that we call winning today and cultivating a better future. We need to celebrate our food and ingredients and expand our reach with consumers. We need to be culturally relevant and a part of the conversation.
We need to show people we can have some fun, because when a brand has a purpose, is visible, and is doing fun things that are a part of culture, people are more interested in it and want to be a part of it. That's how you become a lifestyle brand. We've already taken some steps in that direction. Our latest advertising campaign was put together in my first couple of weeks. It was a noticeable pivot from prior work. We celebrated the food, showed how craveable it is. We also demonstrated a little bit of our personality and sense of humor. Let's watch. The data we have from third parties, as well as anecdotal evidence, shows these ads were very well-received by consumers.
Not only did we change our creative direction in a matter of weeks, we also changed the media plan to feature broader reach and popular programs. We advertised in signature culturally relevant programs like the NBA playoffs and season finales of top shows across a variety of networks. We also linked a sponsorship with a top gaming team playing Fortnite, easily the hottest video game right now that has taken the nation by storm. These actions not only got us heightened awareness with consumers, but our team members also saw them. One of my favorite quotes was from a team member who saw the ads on TV and said, "I love them. It feels like we are back on the front foot again." That's awesome. There is much, much more to come.
We are shifting our marketing from a field-based, promotion-driven approach to a centralized strategy featuring broader reach with category users. Our goal is to make our marketing dollars more efficient and effective. Most importantly, help drive traffic. The foundational consumer research Brian mentioned will give us better insight in consumers. We're putting a stage gate process in place with dedicated resources to help validate new product and promotional ideas. We're working with our agency partners to develop innovative creative that is focused on celebrating Food With Integrity and the real ingredients that make Chipotle great. We're rolling out a new tagline this fall that is a perfect fit for the brand. We're developing innovative media plans with key partners to reach consumers in unique ways across both traditional and digital channels.
We're going to expand the awareness of mobile ordering and delivery, or as we call it, the easiest way to Chipotle. We're going to be more engaging in social media. Already, two of our recent Instagram posts are the most liked in Chipotle history. Overall, we're going to be a much more agile, innovative, and visible brand that people will talk about. Again, I'm thrilled to be part of Chipotle. We've made a ton of progress in the last few months. The best is yet to come. Brian, back over to you.
Thanks, Chris. We expect that all of these initiatives across marketing, digital, consumer access, menu, analytics, and operations combined will create a flywheel that can drive transactions to accelerate our growth. To put it another way, we will amplify our unique positioning, real ingredients, real cooking, real opportunity, and now through our new strategy, real performance. I'll turn it over to Jack now to discuss the short-term financial implications of the restructuring we are undertaking to execute on and align behind the strategy that will unlock our brand's potential.
Thanks, Brian. Before I begin, I want to remind everyone that we're not providing a financial update on our current quarter, and we're not updating or reaffirming the guidance provided on our last earnings call. Everything you've heard today about our focus on running great restaurants, modernizing and digitizing our restaurants, and becoming a more relevant and engaging brand is designed to drive transactions, improve our unit economics, accelerate our earnings growth, and create significant shareholder value. While it's too early to predict the timing and precise impact each of these strategies will have on results, I am confident that the strategies will lead to higher average unit volumes and higher margins in the future. All of these opportunities are going through a new stage gate process designed to ensure successful roll-outs.
As we move through those stage gates over the coming year, we'll have a better understanding around the timing of when these new initiatives will translate to sales growth. In the meantime, we know that a combination of great operations, clever marketing, and pushing further into our digital initiatives will drive near-term sales growth. Executing these strategies at a high level will require changes to our organization and to our culture, that will result in non-recurring charges during the second quarter and over the next few quarters. We'll clearly call out these non-recurring charges as they're incurred each quarter, so that you will have a clear perspective of the underlying progress we're making in our business results. These non-recurring costs primarily relate to the moving of our offices, the restructuring of our organization, and the closing of underperforming restaurants.
In aggregate, we expect these costs to be in the range of $115 million-$135 million. Of that amount, we expect about $50 million-$60 million will hit the second quarter, while most of the remaining charges will hit in 2018, there will likely be some charges, particularly related to terminating restaurant and office leases, that will spill into 2019. As a result of our review of underperforming restaurants, we expect to close between 55-65 restaurants, including the five Pizzeria Locale restaurants located outside of Denver. The second quarter charge will include about $30 million related to restaurant asset write-offs, while the lease buyout cost for these restaurants will be charged over the next several quarters. About half of the restaurants will close within the next 30 days, and the remainder will close over the next several quarters as we negotiate lease buyouts with our landlords.
The non-recurring costs will primarily be reflected in three line items: G&A, the loss on disposal and impairment of assets, and depreciation, and we'll clearly call these charges out each quarter. In addition to the $115 million-$135 million estimated charges, we'll also write off about $10 million in deferred tax assets over the next few quarters as fully vested, but underwater stock options will expire as we complete the restructure of the organization. This deferred tax write-off will hit our tax rate and is in addition to the tax rate impact we discussed on our Q1 call. We'll provide more color on the quarterly timing of all future non-recurring costs when we have more certainty around that timing. In future earnings calls and releases, our quarterly disclosures will clearly break out one-time costs from normal recurring costs so you can follow the underlying trends.
We're confident that following these strategies will lead to better customer experience, stronger customer loyalty, better unit economics, and the creation of significant shareholder value. I'll now turn the call back over to Brian.
Thanks, Jack. When I first spoke to you on our Q1 call, I shared how excited I was to have the opportunity to lead Chipotle in its next chapter of growth and to build on a strong foundation of a well-loved brand that has a ton of growth optionality and one of the best economic models in the industry. As Jack mentioned, driving transaction growth is the single biggest lever enhancing our economic model. We will also be scrappy and find efficiencies to add a tailwind to our economic model. The combination of top-line growth and margin expansion will ultimately lead to increased store growth. I could not be more excited about the future of Chipotle. Capitalizing on that opportunity requires us to build a new culture of creativity, action, and accountability.
The realignment of the organization we are undertaking this year is a significant effort, and while it is potentially disruptive in the short term, it is good for our customers and our shareholders and will result in a much stronger organization that is structured to innovate and execute successfully, to win today, and cultivate a better future, and to capitalize on a wealth of opportunities for many years to come. I can easily see a future where Chipotle more than doubles revenue to over $10 billion. As I've outlined today, our five focus areas that will drive sales and transactions as part of our growth turnaround, Number one, becoming a more culturally relevant and engaging brand that builds love and loyalty. Number two, digitizing and modernizing our restaurant experience that creates a more convenient and enjoyable guest experience. Number three, running great restaurants with great hospitality and throughput.
Number four, being disciplined and focused to enhance our powerful economic model. Number five, building a great culture that can innovate and execute across digital, access, menu, and the restaurant experience. Okay, before we open up the call to questions, I'd like to show you a quick video clip of the Chipotle of the future. We have our executive leadership team here with us today available to answer your questions. As a reminder, we will discuss our second quarter results on our July 26th earnings call. We'll now open up the line for questions regarding our strategic outlook. Thank you.
At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from the line of Nicole Miller from Piper Sandler. Please proceed with your question.
Thank you. Good afternoon. Appreciate the update. I find it very fascinating how you talk about the brand previously being somewhat silent. I wanted to understand if you've measured, perhaps aided versus unaided awareness or some other measure. How will you be measuring the relevancy going forward beside the obvious same-store sales performance? Thanks.
Sure. Hi, this is Brian. What we've been tracking is we have a brand tracker that tracks both top-of-mind awareness as well as what people are saying about the brand. What we have seen, now it's a fairly new study that started back in February, so we don't have that much historical data on it, is an opportunity to improve from where we are today. We also, as I mentioned in the call, we just placed a foundational study, which is going to give us some key metrics on the brand that we'll be tracking going forward. We're going to use the combination, obviously, of sales performance, top-of-mind awareness, and then some key brand metrics that we'll be defining once we finalize all of this foundational research that's coming back.
You also mentioned, you're not at peak transactions. I think I was measuring it earlier today around just over 400 on about $1.9 million AUV and a $12-$13 average check. I think historically there were stores that at peak could do that maybe in an hour. Just a quick two-part question. Do you get more transactions by extending hours, or do you get more transactions at peak? I was just curious to know how does the system do at peak? What are the number of transactions currently? Thank you.
Yeah. I'll answer this and then I can have Scott chime in as well. We believe there's more opportunity for transactions at peak, moving people through the line faster. That goes back to what Scott really has implemented around making sure people are clear on their roles and their accountabilities and being positioned so that they're ready for the throughput that they're capable of doing. That's what we're focused on. Scott, if you want to add anything?
Yeah, thanks, Brian. Hi, Nicole. I think it's something that we have really only begun to put a shoulder against over the last couple of months, and we still have much work to do to really move our restaurants at the pace with which we moved prior. There's a lot of work going on from a training perspective to ensure we're focused on the right things as it relates to shift management overall at Chipotle. Something we've got to do a better job of teaching, which a key component of is faster throughput. More on that to come, but it is a high priority for us and something we're working against as we speak.
Thank you for taking my questions.
Our next question comes from the line of David Tarantino from Baird. Please proceed with your question.
Hi, good afternoon. Brian, my question's about your growth outlook for the next few years. One thing you didn't mention is how you're thinking about unit growth over that horizon. I guess as you think about the opportunity to improve the economic model, what do you need to see to either accelerate the growth or continue the type of growth that you've outlined for this year? Then I have a follow-up question about the restaurant economic model. I think you mentioned that there are opportunities to drive some efficiencies to provide a tailwind to that model. Could you just elaborate on what you meant by that statement as well? Thanks.
Sure. Your first question regarding new units and the pace of development. First of all, the new unit economics we're getting right now are, I think, best in class. They're still returning north of 30%. We're very optimistic about the new stores that we're opening. I will tell you, the pace will increase as the business continues to recover the top-line sales. I think that is something that we're going to be smart about on how we ratchet that up going forward. Because the good news is the returns are there, and I think as the core business really gets itself back to a place of where it was performing, we can also then at the same time start enhancing the new unit development. That's going to be the approach we're going to take, David.
On your second question around efficiencies in the economic model for adding additional tailwind. This is really to the point of our culture where we're going to get a little scrappier on how we approach things. Obviously the number one way for us to see that margin expand is through the top-line sales growth. I think there's also some opportunities for us to get scrappy as we look at the business on how we're spending our money and the areas where they're being spent on. Those are really the components that we're going to be looking at to make sure that we really maximize the economic model out of the business.
Just a quick follow-up, maybe it's for you or for Jack. Any way to size up the opportunity on the cost side, either at the unit level, and then you also, I think, mentioned that you're cutting out a few layers in the G&A structure. Should we think about those as opportunities that flow through to the bottom line, or is that sort of an area where you cut and then reinvest somewhere else? At least any thoughts on that at this stage?
David, this is Jack. On the G&A, the savings are going to be reinvested. We'll have a leaner, more nimble organization. You heard Brian talk about, we've got skills gaps. We've already been filling a lot of those skills gaps. I would say it's going to be reinvestment. The G&A, I would think about that as being similar. Once we get through some of these one-time charges, it'll be similar as a % of sales to what we've had in the past. I would say that excluding dot-com. It's going to be a reinvestment. The reinvestment's going to really be reinvested in things that will drive our growth. In terms of the economic model and what we can do for efficiency, too early to tell. I think it's more of a culture and an attitude.
We're going to focus on fewer things, the fewer things will either drive growth or they will enhance the economic model. I think by focusing on these fewer things, we're going to expect and we're going to get results. As we identify the opportunities, David, in the coming quarters, we'll share more with you.
Great. Thank you very much.
Our next question comes from the line of Sara Senatore from Bernstein. Please proceed with your question.
Hi. Yes, thank you. I have one follow-up to an earlier question and then a question on technology. The follow-up was the goal of both improving throughput and menu innovation and maybe adding items. I think historically there was some sense internally that maybe those were inconsistent. Just is the answer technology? Is it what you're talking about in terms of really defining people's roles and where they should be? I guess, how do we reconcile what has always been known as a very simple model, where it felt like every time something was added, for example, queso, something else had to come out with what we're hearing in terms of menu innovation, and then I have another question.
Sure. Obviously one of the key criteria for us as we go through the stage gate process with any new menu item is going to be the impact on throughput. Whether it improves throughput because we've added new capability with equipment or some technology advancement, meaning it moves to the second make line, something along those lines. One of the key criteria for anything to get to the national phase is going to be a throughput element. What we've seen is there are some menu items that we believe have a high probability of having no impact on throughput. There are other menu items that are going to come with the requirement of probably some equipment investment and a real understanding of how do we tweak the process if we want to be able to maintain the same level of throughput that we have today.
Obviously the second one that I just talked about is going to take a little bit longer from a testing and validation standpoint than a menu item that has no impact on throughput of the process or equipment. That's where the stage gate process becomes a very important piece of the puzzle so that we really understand the impact on our operations, the consumer and the team member, and then obviously the financials. We'll be leaning into that stage gate process to ensure we find the power of throughput and innovation.
Understood. Thank you. Then just on the technology piece, I thought I heard you say you're going to add delivery capabilities to your app, and I think that's something that no one else yet has done in terms of the companies partnering with third-party. It has been companies with in-house delivery that have been able to do that. Maybe talk about how you've leapfrogged some of what we've seen elsewhere or whether you think that's going to be a meaningful distinction between what we're seeing with other restaurants that are partnering with third-party aggregators.
Yeah. I'll hand it over to Curt, but let me answer your couple of questions there. Obviously, one of the things we're really excited about with delivery is our model results in food that gets delivered with great speed. One of the things that we're really excited about in our DoorDash partnership is we saw that speed firsthand relative to all your other food alternatives on a DoorDash website. We're very excited about the idea of being able to, once you're in our app, stay in the app, and give people the access opportunity to have Chipotle delivered to their home, because I think people are going to be excited about the speed at which they can get Chipotle delivered to them.
I don't know if we're the only ones with delivery in our app, but I'll hand it over to Curt to see if you want to add anything.
Yeah. I'll follow up by saying we're really excited, Sara, about this launch and this test coming later in the year. As Brian has said, we're a learning organization now, it's early days, we're excited to see how customers respond and how we can continue to make digital the easiest way to Chipotle.
Thank you.
Our next question comes from the line of John Glass from Morgan Stanley. Please proceed with your question.
Thanks very much. My first question is just simply a timeline question. Brian, when should we expect to start to see the results of some of these initiatives coming into play, specifically in the back half of this year? Is that an unreasonable expectation? Do you expect, for example, a product launch in the third quarter? Is there something on the marketing front? You talked about a lot of pieces and a lot of need to rebuild some capabilities. What's a reasonable expectation of the type 2 or 3 examples of things that should happen inside of this year, let's say?
Yeah. What I can definitely share with you is you're going to start to see us testing programs in the back half of this year. You'll see these tests happening with some food ideas. You'll see some tests happening with digital loyalty, and we're very excited about all those. Depending on how things perform in that stage gate process will dictate the timetable for which we roll it out. One of the things that I think is important for the organization is we iterate, we listen, we learn, before we then decide to go with a national launch. We're in the early days of validating these propositions, and once we start moving through the stage gate process, we'll be sharing when they will actually be hitting the national programs going forward.
I guess go slow to go fast, in other words, to make sure that you're getting them right when you do launch them.
That's correct.
Okay. Remodels was discussed last call, or maybe two calls ago, as something of a 2019 effort. Maybe that was before you arrived. Do you look at the businesses needing a substantial remodel, a light remodel, or how do you view the physical assets and how do you phase that into these other initiatives?
Yeah. We have an initiative called the Big Fix, and that is happening. I'm happy to say we're on track to be finished by the end of this year. I think we're exactly 50% of the way done right now. This is really where we are bringing all of our restaurants up to date. It's fixing the lights, the painting. It brings them back to a, I would say, a class 1 restaurant experience. Separate from that, we also have an effort going on with a redesign, which is kind of the Chipotle restaurant of the future. You'll see that going into some testing in the back half of this year, probably right around the fall timeframe, you'll see us going into New York City.
Got it. Okay. Thank you.
Our next question comes from the line of Sharon Zackfia from William Blair. Please proceed with your question.
Hi, it's Sharon Zackfia, that was a good try. I guess a couple of questions. Now that digital is up to around 9% of sales, I'm just wondering if you've been able to harness that data at all and kind of incent consumer behavior in different ways. I don't know where you are on that. If you could give us some perspective, once you launch loyalty, kind of when you'll be able to use that data to then kind of create new customer behavior. Lastly, I don't think you mentioned international at all, so just if there's any thought on what to do with the international locations.
Sure. Your first question around digital and loyalty, and I guess more importantly, the data approach to remarketing or incentivizing our customers. That's absolutely part of our approach going forward. One of the things I'm really excited about as we get this pilot going with our loyalty program, we're going to start to move to really the tailored data specific marketing that then can use the currency of the rewards program to drive certain behaviors, incent certain products, incent certain experiences. We think that's going to be a key unlock for the business going forward. As this business goes from 10% plus in digital sales, that presents an opportunity for us to have more customers in our business engaging at a different level than they have in the past.
When you layer on top of that a loyalty program with a strong CRM engine, I think really exciting things will be unlocked as we roll out loyalty on a national basis in 2019. Your second question was on international.
For now, international. We are managing. It's not an aggressive part of our plan for growth. We're focusing the aggressive growth in the U.S. business, and that's why we outlined this right now.
Okay, thank you.
Our next question comes from the line of Karen Holthouse from Goldman Sachs. Please proceed with your question.
Hi. Two questions that go back to some of the prepared remarks. There is a comment on opportunities to enhance the value proposition across day parts, I think as it relates to value, the only specific thing mentioned was a happy hour test. Are there other things you're looking at in terms of pricing or sizing in other day parts, or is that really more of a comment on the overall customer experience, potentially layering and loyalty? Second, it would seem like some of this sort of foundational consumer research is really going to feed back into some of these tests and other strategy. How long is it until you think you get sort of the base level of data in place for that?
Sure. Your first question on the value and how we see that playing out. You're exactly right. We see using our rewards program as a great way to present targeted value and incentives for customers when they want it, where they want it, and how they want it. Combine that with providing some value that matches up with a day part, like a happy hour, which matches more of like a snacking occasion. I think we have to provide the right value equation for a snacking occasion between the hours of 3:00 to 5:00 P.M. Those are our lead-in ideas. Obviously, a key piece of the puzzle is always understanding our price equation as well.
What will be important is we'll continue to make sure we understand how consumers are interacting with the menu, and where we see opportunities to enhance our value proposition. We will do it in a smart fashion. Your second question on the timing of the consumer foundational research, yeah, absolutely. This will inform pretty much the entire business, and we're really excited. We're going to start getting some of the preliminary results back here in the next month, we'll have the entire package back by the time we get to fall. We're already starting to get some learnings back. It's very exciting because it's new knowledge for the company and it's new insight into our customers, which I think is going to be hugely valuable for us going forward.
All right, great. Thank you.
Our next question comes from the line of John Ivankoe from J.P Morgan. Please proceed with your question.
Hi, thank you. A couple follow-ups. Firstly, when you make delivery available on your app, what percentage of stores will that currently cover?
Oh, okay. You're talking about the in-app delivery experience? What's that percentage?
Yes, exactly.
Hi, John. To start, we will be covering approximately 1,500 restaurants and expect to get to around 2,000 restaurants by the end of the year.
Okay, perfect. That's a big number. Secondly, Jack, I think the question for you. You mentioned G&A being similar as a percentage of sales into the past, excluding executive comp. The past has actually shown some variability in terms of G&A, and obviously, stock comp, executive comp is actually a big % of that. As we think about 2019 and 2020 post the move, some of the restructurings and some of the hires, can you help us just get closer to a number in terms of what G&A should be as a % of sales for a company of this size?
Yeah.
That includes including stock comp.
Well, including the stock comp gets tough only because when the stock moves, the stock comp moves pretty dramatically as well. The thing we can control is the underlying G&A that we spend on people, offices, things like that. I think as we get through a lot of these non-recurring charges, our current underlying G&A is in the, call it low 5% to mid 5% range. When you add in stock comp, you're in the mid to high sixes or something like that. I think that as we get through all of these adjustments with our offices and our structure, we'll still be in that same kind of range. Once we get to that range, as we build sales with the strategies that you've heard today, we've been able to lever G&A in the past, and I expect we'll be able to lever G&A in the future.
I think the important thing is our G&A will be in a similar pattern. What's really going to drive is we're going to drive top-line sales. That'll drive our margins, that'll drive unit economics, and that's where I think most of our shareholder value is going to come from.
Thank you. Then two quick ones. Brian, per your previous experiences, especially on the operating side, how do you think about the right prime cost, food and paper plus labor, for Chipotle? That's a line that's actually changed quite a lot over the course of the history of this company. Do you think about it at the 60% range? Do you think about it at 55%? Somewhere in between? Is there something that you think about on the prime cost side in terms of what this business should be over the course of the cycle?
Yeah. John, listen, this is Jack. Right now, we're in kind of the 60% range. Our model works quite well. We're in the 60% range, but you know very well that it wasn't that long ago, we were in the 55% range, and that's how you get margins in the mid to high 20% range. We have the ability to get back to that, but it all depends on the top line. So the strategies that you've heard today are very heavily weighted towards driving the top line, bringing customers in, making the brand relevant again. If we do all that well, we have the ability to get those prime costs back into some of our historical ranges.
That's a very important point. Finally, when you mentioned $10 billion of sales for the Chipotle U.S. brand, how many stores does that contemplate in your current thinking in terms of optimizing that portfolio?
Yeah. Look, the way we think about it is, you could easily be around 5,000 stores at some point, while we're exceeding $10 billion.
Okay. Thank you. Thanks for all the questions.
Our next question comes from the line of Jeffrey Bernstein from Barclays. Please proceed with your question.
Great. Thank you very much. Two questions. First, just Brian, I know you talked about being pleased with the underlying sales trends. Just wondering from our side of the seat, the compares are obviously difficult to read, the one, the two-year, just wondering what measures do you focus on perhaps daily or weekly or monthly, whether it's variability by geography or day part or product line? I'm just trying to figure out how you define success in your seat in terms of the comp growth. Then I had a follow-up on the supply chain.
Sure. Look, we are watching sales and transactions every day. We look at it by region and by day part. What we continue to see is good performance in all the day parts. We're optimistic that the continued improvement in throughput and operational execution will continue to support the sales trends that we've seen to date. Obviously going forward, the plan is to accelerate the sales and transactions with the initiatives that we put through the stage gate process that we have a high level of confidence that will grow the business. That's what we're looking at. That's the scorecard we keep an eye on a daily basis.
The other key thing we also look at is obviously what % of our business is growing through the second make line, because I think it's just an indicator of how we're doing on driving our digital and off-premise business.
Got you. Just separately on the supply chain side of things, there was mention of Food With Integrity and I know you talked about authenticity and transparency, which sounds like conference calls from years past. Just wondering, how much time have you spent focused on the supply chain? Maybe what changes you think need to come? Obviously, there's big risks in the supply chain and as you enhance kind of new products and whatnot, I'm just wondering your thoughts on the supply chain changes that have been put in place and what we should expect going forward. Thanks.
Yeah, sure. A couple things. One, I think I mentioned this in my prepared remarks, maybe I didn't, but we've hired a new supply chain leader. It's probably the first time in a long time that we've had what I would call a real expert in the supply chain space leading our supply chain efforts. He's two, maybe three weeks into the job now. Very excited about him getting into the role and helping us figure out our next chapter on how we work with our suppliers and partners on our supply chain. To answer your question, my ability to get out and meet some folks, I've had the opportunity to meet with two of our bigger partners, OSI and Miniat. The thing that I love about our partnerships is they are as equally excited about the food as we are.
To have that commitment to that quality is hugely valuable. Obviously we'll figure out how we do it in the most efficient fashion. When you have that shared value of commitment to quality and excellence and Food With Integrity and really trying to move things to another level, it makes for a powerful partnership. I'm very excited about Carlos joining the work, and I'm very excited about my early conversations with some of our key suppliers.
Understood. Thank you very much.
Our next question comes from the line of Andrew Charles from Cowen and Co. Please proceed with your question.
Hey, guys. It's actually Brian Beaton on for Andrew. Thanks again for all the updates today. If I could just ask maybe two around digital. In terms of the app, as we look out kind of the adoption curve, what do you guys view as sort of the biggest hurdles to breaking through the fray, and sort of offering consumers a compelling reason to download the app? The confidence is encouraging, but thus far, we've kind of seen this as a challenge, not only for fast casual, but sort of the broader restaurant industry. In your answer to Sara, I believe, it sounded like maybe once customers download the app, delivery could drive sort of deeper engagement with the app. What are the bigger hurdles you see to breaking through the fray and driving that adoption on an in-house app?
Just secondly, from a marketing perspective, in the spirit of moving away from promotions and more towards a centralized approach from a delivery or mobile app perspective, does that mean marketing will center more so on media ads or could that have more of a promotional element? Thanks, guys.
Sure. I think our biggest hurdle on the app, frankly, is just awareness. Right now, I was just looking at some numbers, but more than 50%, I think it's like 52% of people aren't even aware that we have an app. I think this goes back to the question somebody asked me earlier, why do you believe the brand isn't as visible as it should be? It's things like this that are, I think, key growth engines for the business that we just have really low awareness on. Job number 1 is to get people aware of the app, because I think they're going to love the experience based on the users that are already in the app. Job 2 is how do you get them to continue to use it? I think we have to continue to provide utility in that app.
Adding things like delivery, adding a loyalty program, these are things that will continue to provide utility for them, because then what we'll be able to do is get into this game of one-to-one communication and really change the level of engagement with our customer through that app experience. It's going to be a combination of things that I think ultimately move the app forward. I think the biggest challenge for us, first and foremost, is make people aware that they have the app. Give them the experience that gives them a reason to keep using it, right?
If the whole experience then is just superior to anything else they've seen, where when they order, they pick it up, the order is accurate, the speed is like nothing they've seen, that it's getting delivered, it's at a level of speed that they haven't seen with accuracy that they haven't seen. Obviously, you layer in the idea of loyalty. I think you start building utility for why people are going to adopt the usage over time. What was your second question?
Mark.
Great. Yeah, just secondly, just from a marketing perspective, I know you guys have talked about sort of moving away from promotions and sort of more towards a centralized marketing approach, but just from a delivery or mobile app adoption perspective, just wondering, does that mean the marketing to get those signups will center more so on sort of media ads? Or could that have more of a promotional element of maybe a coupon or something to that effect?
Look, what we're going to be moving towards is programs that I think are going to engage and connect at a different level than we have in the past. How we choose to connect will be driven by the users that we're trying to persuade with the experience that we provide. You're going to see us be very present in digital, mobile, all the non-traditional mediums. You're also going to see us show up in the traditional mediums because I think at the end of the day, and Chris, feel free to chime in here, we want to be relevant and engaged with all category users, light, medium and heavy. To do that means our marketing program has to be comprehensive and find people at the right times when they're interested in engaging with Chipotle. Chris, I don't know if you want to add anything.
Yeah, I think, look, you got to use all the tools at your disposal, there'll certainly be some promotional things. We'll continue some of the promotional things that we've done in the past. Overall, you'll see a pullback in promotional activity in favor of the more centralized marketing, driving awareness and hopefully transactions and traffic that'll follow that.
Great. Thanks for the time, guys.
Our next question comes from the line of Matt McKinley from Evercore ISI. Please proceed with your question.
Thank you. Brian, I appreciate that the economic model of the restaurant and the top line is what supports future unit growth. The development pipeline for units is not a short one typically. This year, you guys have slowed the unit growth, but you ramped up the investment in existing stores, remodels, and just investment in digital and things like that. It doesn't sound like you want to put out a specific growth number, or you would have done so. Does the present new unit run rate seem like that's the right pace of growth? I guess secondly, is the investment that you made in CapEx in those new stores, is that unique to 2018, or is this something that we should expect more spending on existing units in the future?
Look, I think when we get to fall, we'll be in a better position to talk through exactly how we're seeing the new unit growth. I think, like we said in the last earnings call, we see at or better in 2019. To your point, the development pipeline is an 18-month pipeline. What is good news is we're seeing great economic results in the new restaurants we're opening, and we're liking the economic model that we have in our current restaurants as we continue to see additional sales strength. Your question on the CapEx as it was allocated to the Big Fix. The Big Fix is just that, it's a Big Fix, where we're coming in to probably make up for some time that we should have been doing it over time that we didn't.
As a result, we're coming in and doing it. I do think going forward, one of the things that's going to be important is we don't find ourselves falling behind on our restaurants. That's something we don't want to repeat. We'll be able to share more details on that front probably around the fall.
On the store closures, other than being unprofitable, is there a common theme on the age of the store, the location or the geography that amongst these 60 or so that you're going to wind up closing?
Not really. There's no common theme. I don't know if, Jack, I don't know if you want to add anything to that.
Yeah, no. They're all over the place. They're various ages. Some are a couple years old. Some are 15 years old. We literally just culled the list
That were cash flow of leaders. Went through, looked at every single site, looked at quality of the real estate, quality of the team, the sales trends, and we made a decision. Frankly, we don't close stores very often. We didn't like closing these, but these are ones that we just didn't see getting to or above breakeven for some period of time. They were all over the place. There's nothing that's broken with our approach to our real estate pipeline. These just were random misses.
Okay. Thank you very much.
Our next question comes from the line of Brian Bittner from Oppenheimer and Company. Please proceed with your question.
Thanks, guys. Appreciate all the commentary today. Do you plan at any point to give us a more detailed look into how you expect all of this to impact the financials, whether that be through the establishment of financial targets or goals or something else? I have a follow-up.
Look, we've not changed any of our expectations for the year. I think as we get through the stage gate process for these various initiatives, we'll have high level of confidence in what that performance looks like, which then, obviously as these things unfold, we will share with you the progress that we're making in the business. The point of today's conversation was to share with you the strategy for how we see the growth unfolding. As we start to validate that growth, we will share with you how that's impacting all the financial targets and the subsequent pieces of the puzzle that come with it.
Okay, thanks for that. Just as you set out to drive this top-line strategy, should we expect all the incremental sales growth from this strategy to be highly incremental to profits and margins and just drive significant operating leverage? Or should we be expecting some type of in-store operating expense step up to drive this strategy or capital expense step up or whatnot, just on the investment side?
Look, what we're looking for obviously is incremental profitable growth, right? That's what we are first and foremost after. With that said, various initiatives are going to have varying degrees of incrementality. What I'm excited about is, the preliminary look is, we've got a lot of exciting things that we're going to start putting through our stage gate process that is going to start validating how incremental these programs are and then how that flows through the economic model. Yeah, of course, the goal is incremental profitable sales growth. That's why we're vetting these ideas.
Understood. Thanks. Just final question from me, just Brian, can you comment on moving the headquarters from Denver to Southern California? What are the primary benefits you expect to harness from this move?
Sure. I think as we mentioned in here, we're going to be building more marketing, more digital, more menu, data analytics, varying areas of expertise, and we think we have the ability to really transform the organization in a faster fashion by relocating the company. That's the impetus for doing it. There's lots of talent on the West Coast and across the entire country that frankly wants to be a part of the Chipotle journey. We're very excited about the restructuring, the relocation, and the new culture and talent that we'll be building.
Thank you.
Our next question comes from the line of Chris O'Cull from Stifel. Please proceed with your question.
Yeah. Hi, good afternoon, guys. This is actually Mitch on for Chris. A question about catering and the opportunity around that. You recently announced options for smaller groups and different pricing tiers. Curious, are you pleased with those effects of those actions, and are you employing other initiatives to grow that business, perhaps putting more marketing dollars behind it?
Go ahead, Chris.
We view catering as a big opportunity and a highly incremental opportunity. I think that going down to a package size and a price point that's a little bit more accessible should open up that market even further and give us some more flexibility. It certainly is on our radar screen from a digital ordering standpoint. We're racking and stacking that with all of the other mobile and digital and delivery initiatives that we have. We will be putting dedicated resources against it going forward because we do think it's a good opportunity. We think that with the rest of the suite of mobile and digital ordering and delivery and everything, that catering is a key aspect for us. We'll see how this new rollout of the smaller one goes.
We'll pour the gas to the things that deliver the most incremental profit for us, and we'll continue to evaluate others to help optimize those. We love catering. We think it'll be awesome. We think it's a huge opportunity, and we'll just pace and sequence it with everything else.
Okay. Thank you for that. Just a follow-up question on loyalty. I'm curious whether you have done any studies to gauge consumer demand for this, and if so, what have they showed?
Yeah, we have, and actually this is one of the top consumer requests for Chipotle to provide. This is going to be one that's going to be a customer pleaser.
Okay, great. Thank you, guys.
Our next question comes from the line of Gregory Francfort from Bank of America. Please proceed with your question.
Hey, I got two questions. The first is, just after you do the tax write-off, I think part of the reason the tax rate was staying high the next couple of years is because the stock was down. If you sort of write that off, what do you think this ongoing tax rate's going to be? More from a big picture, Brian, how do you envision the operational flow of the line? As you go out and test in these new store prototypes, are you going to be putting in new equipment for new products? If so, where do you think that goes? Just any changes to the structure or flow of the line as you see it today or opportunities to kind of change that just to improve the labor efficiency or anything along that line?
Why don't I answer the second question, I'll hand it over to Jack on the tax. To answer your question, any new item that we bring in, one of the things that I'm very cognizant of is, today, the reason why we have $2 million AUVs is because we're selling burritos, bowls, and tacos at a tremendous throughput, that model has to be protected. As I mentioned earlier, one of the key criteria is anything we bring in cannot cause us to go backwards from a throughput standpoint. Okay? Now with that said, there's going to be products that we may introduce new equipment that I think will improve the experience for the customer when they order something that maybe doesn't go down the line the way it always has.
We may have to put a piece of equipment in a different place so that you move from that customer-facing line where things are flowing to where it moves off, uses a piece of equipment, but then gets back to that register and expediter in the right timing so that the flow is uninterrupted. You see this happen in a lot of other restaurants. The key is, though, you have to take the time to make sure you understand the time and motion involved with the new equipment and the new menu item. We're going to take that time. We're not going to rush it when you've got something that is going to be a difference to the current line optimization that we have today. An initiative that utilizes the current line optimization probably will be able to move through the stage gate process a lot faster.
That makes sense.
Yeah. That is going to be the approach. I just want to clarify, one of the things that is, and I think I said this in my remarks, one of the things that is exciting for me that I discovered is just better understanding how powerful this operating model is. The economics and the food and the team member experience that all happens with this line is a real gem, and we have to protect it. Fortunately, one of the other gems we have is that second make line, which allows us then to do a lot of this digital business, off-premise business, without impacting that customer-facing line at all. If anything, it creates a lot more capacity in the restaurant, and it creates an even more attractive economic model when you start ramping up on that digital make line or second make line.
I'm really excited about how we can use technology, loyalty, access, and some menu innovation to really, I think, drive incremental growth that helps us protect our throughput and hopefully improve on it. Jack, I don't know if you want to take the tax?
Greg, Chris was down here, but I'll take it, Chris. Greg, our underlying tax rate is 28.8%, and I went through that in quite a bit of detail on the first quarter call, so you might want to go back to the transcript on that. Our rate is going to be higher, in the high 30s. It was in the high 30s in the first quarter, it'll be about that rate in the fourth quarter. They're noneconomic, they're non-cash. The thing I mentioned today, about a $10 million write-off. These are deferred tax assets that were put on the books when our stock was at a much higher level. We're expecting with the restructuring that stock options are going to be forfeited. They're vested. They're going to be forfeited as we restructure.
There's no tax deduction available, but there's also no expense available either. Those options are not going to be exercised at all. It's just an imperfection in the way accounting leaves the expense on the books. Tax will never allow a deduction when there's not an actual cost involved. These are noneconomic. They don't take out of any cash out of our balance sheet. They're very difficult to predict. In a normal environment where the stock continues to increase, you won't see this type of stuff. As we see this stuff coming, I'll warn you about it, and we'll tell you about it each quarter about these unusual write-offs of deferred tax assets.
Got it. Thank you.
Our next question comes from the line of Peter Saleh from BTIG. Please proceed with your question.
Great. Thank you. Brian, I think you touched on this in your last comments, can you talk about the margin profile and maybe the throughput capability of that digitally enhanced second make line?
Well, I probably won't get into the specifics of the margin associated with it, but what I can tell you is it obviously runs with less labor. It's in the three people needed in order to execute the second make line versus six or seven people on the customer-facing line at peak. That obviously is a nice tailwind for the second make line. The other piece that we love about it is the accuracy and the speed associated with using that second make line is also another really powerful tool because Now with our second make line, we can literally tell everybody, "You know what? You can skip the line when you order online." That's going to be, I think, a powerful message in the Chipotle business going forward.
Just my last question. On the loyalty program, are you envisioning this to be a digital-only loyalty program, or will this be something similar to what you had in the past with a physical presence in the store?
I'm going to let Curt answer that one. He's the master of all things loyalty.
Hi, Peter. The loyalty program will be available in-restaurant as well as online, but there will not be a physical card. A customer will create an account, a loyalty account digitally, and they can use their phone to present that account either on the register or, as Brian has said, the fastest way to order is to order digitally, where that number will just be placed as part of that ordering process.
All right. Thank you very much. Very helpful.
Our next question comes from the line of Nick Setyan from Wedbush. Please proceed with your question.
Thank you. Just on pricing, as mid-single-digit labor inflation is ongoing and food costs may not remain as benign as they've been this year, how are you thinking about your pricing strategy going forward? Just specifically, how are you thinking about pricing in 2019?
Yeah. We've not made any decisions on our pricing for 2019. Our approach to pricing will be obviously looking at the metrics you just talked about, and then you obviously have to put the customer into that equation as well. That's the approach we're going to be taking, understanding what's going on with our food costs and paper costs combined with our labor costs, and then managing that relative to what our customer's expectation is on a great value proposition, and then also how much growth we foresee in the business to also overcome some of the inflation. We're going to take a comprehensive view and we will approach it that way every year.
I guess just a follow-up, maybe for Jack. As we think about transaction growth, assuming there's no pricing in 2019, what kind of transaction growth do you think is necessary for us to be able to lever at the unit level?
Yeah. It depends on the inflation. If you have inflation of labor inflation, for example, somewhere in the mid-single digits, which is what we've been running, you need to get a mid-single-digit transaction-driven comp, just to stay even on the restaurant cash flow line. You'll still lose, you'll delever on labor, you'll make it up in some of the other line items, and you'll about break even. I think in this kind of environment, you have to be considering a combination of transaction growth and well-thought-out, as Brian mentioned, price increase to try to offset both so that as you're growing transactions, you'll at least hold, if not grow margins.
Thank you.
Our next question comes from the line of Jon Tower from Wells Fargo. Please proceed with your question.
Thanks. I know it's getting late, I'll try to be quick with these. Just first one for Jack. If you can quantify what the drag was or will be from those 55-65 stores that you're planning on closing, what sort of drag that was on store-level margins. Second, I guess this is for Brian or Chris. In terms of making the brand more visible over time, is that going to require a higher spend going forward from a marketing standpoint? I think that's run roughly about 3% of sales historically. Lastly, now that you're doing all this brand research in the early learnings, have you better determined where some of that lost traffic has gone since the food crisis, meaning other fast casual brands or fast food? That's it.
I guess we'll take it in order. This is Jack, on the restaurant-level margin. Those restaurants were well under $1 million. They were all cash flow losers. When they're all fully closed, we should expect a margin improvement of 30 basis points or more. Keep in mind, we're closing about half or so in the first month, the others will be half and over time as we negotiate with the leases. This won't hit all at one time, but eventually, when they're all closed, we should pick up 30 basis points or perhaps a little more.
This is Chris. I'll take the conversation about the overall marketing budget. I think that you're right, we have about a 3% marketing budget. I think our opportunity, certainly in the short term, is to be more efficient and effective with the existing dollars that we have. One of the beauties of having an innovation pipeline and a stage gate process and a testing protocol is that you can test varying levels. You have a much better certainty about what you're doing as you go national once you've tested it in a test market. We'll simulate different levels of spending, we can decide as we go forward whether those delivered on what we wanted to or not. Over time, you might be able to lean into some products, and some products you may not.
I think that's part of the beauty of having a defined process and an innovation process and an innovation pipeline so that you can pick and choose what works the best. In terms of the question about where they went and who we source from, I think that's a big part of the foundation of research. I think one of the beauties of Chipotle, though, is that we have a great balance of getting consumers not only from just QSR and other fast casual, but even from casual dine, and also we have a great mix of both men and women. It's a really widely appealing brand, and I think that's a big opportunity for us to appeal to category users from a more centralized marketing standpoint than just a more decentralized promotional-based marketing plan that we've had in the past.
Okay. Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to management for closing remarks.
All right. Well, thank you, everybody. Hopefully, you have clarity on our strategy for how we're going to cultivate a better world and win today. Thank you for everybody's time and your interest in Chipotle. Have a good night.
This concludes tonight's conference. You may disconnect your lines at this time. Thank you for your participation.