Chipotle just revealed a top reason customers demand refunds — and has a plan to prevent them

• Chipotle's app now lets customers know if they are going to the wrong location to pick up an order.
• Many customers want a refund after realizing they've ordered from or shown up at the wrong store.
• Digital orders have slowed down for Chipotle since the early pandemic but remain a source of growth.

Chipotle has a problem: Its customers are showing up to the wrong restaurants to pick up their online orders. When they realize their mistake, many request refunds. 

But the chain just rolled out a solution, its CEO said on Tuesday.

Customers who use Chipotle's smartphone app now get a notification if it looks like they are ordering from or en route to the wrong location to pick up their order, CEO Brian Niccol said during the company's first-quarter earnings call. The new notifications use improved technology to determine customers' locations as they order.

The new technology is a step forward, Niccol said, "as one of our most frequent refund requests is due to guests arriving at the wrong restaurant."

"Since rolling out this feature, we have seen a meaningful reduction in those refunds," he added.

The app's location technology also reminds customers to scan their loyalty card when they're standing in line at a restaurant to retrieve their order, Niccol said. 

Chipotle did not immediately respond to Insider's request for comment on the refunds and the new feature.

Chipotle's e-commerce business, including orders through its app, have helped grow sales over the past few years. Digital sales at the Mexican-grill chain reached $3.4 billion in 2021, thanks to improvements to its app and early-pandemic demand for delivery.

The company has also opened locations called "Chipotlanes" that only fill digital orders. 

But digital sales have declined since then as more customers have come back to Chipotle's physical locations to order and eat their tacos and burritos. Digital sales represented 39.4% of all sales in 2022, several percentage points lower than 46.2% in 2020.

Chipotle has just under 3,200 locations in the US. It plans to open 420 new restaurants within the next 12 to 18 months, according to a proxy filing earlier this month. The chain is aiming to expand its North American network to 7,000 restaurants, it said last year.