How Chipotle Became The Gold Standard Of Mexican Fast-Food

Chipotle burrito


To eat Mexican food, the Hound used to rely on Taco Bell and Don Pablos (we are serious about Don Pablos).  Then in 2001, we saw our first Chipotle. A few of us dined their regularly and it was our “secret” Mexican joint. That lasted for all of five weeks.  Before we knew it, Chipotles were popping up on street corners everywhere – cities, suburbs, colleges, and strip malls.  And the lines were out the door at all of them. 

Must be a franchise expansion model, right?  Wrong, dead wrong.  Each location is corporate owned and operated. No franchising allowed!

“When I created Chipotle in 1993, I had a very simple idea: Offer a simple menu of great food prepared fresh each day, using many of the same cooking techniques as gourmet restaurants. Then serve the food quickly, in a cool atmosphere. It was food that I wanted, and thought others would like too. We’ve never strayed from that original idea. The critics raved and customers began lining up at my tiny burrito joint. Since then, we’ve opened a few more.” – Steve Ells, founder and CEO

A few more?  In 1998, McDonald’s corporation invested in the concept to grow its store base. Cha-ching!  Chipotle now has over 1,000 locations in 36 states and Mickey D’s spun the business off in 2006.

While Chipotle is not a franchise, they are gold standard in fast casual dining. From their streamlined operations to their delicious food to their modern decor, this concept is nothing short of first class. To better understand how they progressed, see the Company history below:

1993 – First Chipotle opened at a former Dolly Madison ice cream location

1995 – Added 2nd and 3rd locations

1996 – Opened 5 more Denver area locations

1998 – McDonald’s Corporation purchases a minority stake in Chipotle

1999 – McDonald’s purchases majority control of Chipotle. Store count reaches 37

2006 – Goes public on the New York Stock Exchange

Burritos are not a complicated food. Why did Chipotle exceed all expectations? Here are our reasons:

1. Adherence to original principles

Steve Ells said, “I just wanted to build a place where you could eat delicious food made of the finest ingredients quickly and cheaply (relatively). As it turns out, it was an idea people could get behind.” From the first store in Colorado to now, Chipotle still sells those same, tasty burritos and never strayed from their original ideals. The menu (burritos, tacos, bowls) is as simple as can be and they execute with perfection.

2. Solid food

Very few actually knock the taste of the food at Chipotle because they create the best mainstream burrito experience in the world. Using only 100% naturally raised pork and chicken and sourcing cheese with no rBGH, Chipotle has evolved into a burrito making powerhouse that actually cares about the food it serves.  Incredibly, Chipotle has grown right past the health food frenzy.  1000+ calories and they still sell like crazy!

3. Superior execution

Despite the lines (which remind us sometimes of being at an amusement park), they are able to serve hundreds of customers in a very short period of time. A manager at a Manhattan location said, “we can serve over 1,000 customers during peak hours because we execute quickly.” Not many food businesses are able to say that.  Chipotle customers are in control of the process – selecting each and every ingredient and watching it get built (and often pleading for more stuffing – we have no idea how the burritos don’t burst).  This customer-experience is being emulated by falafel, sandwich and now even sushi joints.

4. Strong real estate selection

Chipotle is ALWAYS in either a corner location or primetime real estate area with a plethora of car and/or foot traffic. The real estate team does not settle for just any mediocre spot. They are willing to pay up and because they are as risk-free as you can be in the food business, landlords across the nation are begging Chipotle to rent from them.

5. Managerial excellence

In just 17 years, Steve Ells has turned his one-store Company into over 1,000 locations in 38 states, District of Columbia, Ontario, Canada and London, England. The key turning point of this Company was when Ells decided to partner with McDonald’s in 1998. Having this key partnership gave Chipotle the ability to scale quickly across the nation. Not to mention giving Chipotle the ability to source ingredients at a much lower cost using McDonald’s mass purchasing power.

6. Motivated employees

Having been to over 25 Chipotle’s across the country, what we admire the most is their consistency. The employees work hard to create the best experience for each customer. Why? Chipotle pays above market rates and keeps their employees incentivized. Most Chipotle employees we have spoken to love working there. The result is lower employee turnover relative to industry averages.

What does this all mean? A big pile of cash for Chipotle and Chipotle shareholders. Priced at $22.00 in its IPO in January of 2006, the stock closed at $229.33 (1/19/11), only a 942% return. No big deal, right?

We highlight Chipotle as a business to follow and/or get inspired by. They took a simple concept and one store and grew into a burrito monster. If your mouth isn’t watering yet, check out their average store financials:

  Amount Average 12-month sales $1,806,000 Cash flow $477,000 Operating margin 26.4% Cost to build out one store $800,000 Return on investment 59.6%What’s their plan for 2011? To open ANOTHER 140 stores. If you are in the business, study them. They lead the herd and the competition attempts to follow.   The Chipotle management team had full confidence that they could execute on a fast expansion plan so mitigating their own risk by franchising was not an option. And it doesn’t hurt having McDonald’s behind you!  You want in? Buy the stock: CMG

Disclaimer: We are not financial advisors.  You should have bought the stock in 2006- we certainly wish we had.  That’s why we aren’t in finance anymore.

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