Mexican food chain Chipotle may not have the brand recognition power of its former parent company McDonald’s, but it is quickly emerging to be a big fast food player.Founder and CEO Steve Ells capitalised on the massive popularity of burritos and fresh Mexican cuisine when he started the restaurant in the early 1990’s. The model worked because customers felt like they weren’t in a massive fast-food chain but could still get their food quickly.
Chipotle showed it had strength when it continued to expand and gain popularity after parting from majority shareholder McDonald’s in 2006.
It now has over 1000 outlets and is pushing for an international expansion. It is also taking its successful model and launching a new Asian fusion chain later this year.
Chipotle has grown from one converted Dolly Madison ice cream shop in Denver to over 1,000 stores in the U.S., Canada and London with more than $1.3 billion in revenue.
The restaurant was opened by founder Steve Ells in 1993 and by 1997 it was up to 14 stores but only in Colorado.
It was in 1998 when McDonald's Corp. purchased a minority stake in the restaurant stores were opened outside of Colorado. In 1999 McDonald's took a 90% stake and by 2003 the company had 300 stores all over the country.
It was the first time McDonald's invested in a company that it hadn't developed itself.
Its eight years with McDonald's were not only tremendous growth years for Chipotle but it allowed the company to get access to the best supplies through its parent companies' huge distribution system and establish a loyal customer base.
Chipotle's break-up with McDonald's didn't slow it down.
It's revenue has grown on average 25% a year since 2006, the year it also went public.
The break also gave the company more control and flexibility in its desire to push its 'food with integrity' program which promotes its use of healthier ingredients.
The food also has more of a gourmet feel and is fresher. It is really 'quick food' instead of 'fast food.'
Sales are divided about evenly between eat-in and carry-out customers.
The chain does not have a drive-thru but it does deliver.
People are very serious when it comes to burritos.
Chipotle has a devoted base that has mostly grown by word of mouth as the company does not have a large advertising budget when compared to its peers. At $4.5 million , its advertising budget is less than 1% of its revenue. McDonald's spends around 4%.
It has multiple fan web sites devoted to it including The Church of Chipotle Facebook group.
The company has a history of strong pricing power and though management did say it will probably have to raise prices in the second half of the year because of rising commodity costs, it is in better shape to readily absorb inflationary costs than franchise-operated costs which have to pay royalties to parent companies.
Management also said it feels it has enough goodwill with its customers for not raising prices in the last year that they will accept the raise willingly. The average person spends around $10 in Chipotle.
The Asian chain will be similar in pricing, use the same service format and use the same Food with Integrity Model.
It is expected to launch in one of about 40 existing Chipotle markets by the middle of this year.
Analyst Sharon Zackfia of William & Blair said the move was the 'next logical evolution' for the company.
Chipotle has stuck very strictly to founder Steve Ells' original goal: '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.'
The menu, execution and format of the restaurant has stayed the same since those first few years in Denver.