The Amazing Story Of Chipotle


Photo: Flickr

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 restaurant in 1993 to over 1000 today

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 partnership with McDonald's helped Chipotle get established

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.

Revenue growth has been explosive

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.

Chipotle is fast food of a higher quality

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.

And its food has wide ranging appeal

While traditional fast-food chains like McDonald's and Burger King primarily serve families and teenagers Chipotle serves a demographic mainly composed of adults between ages 18 and 49.

The architecture and interior design also has a hip and urban aesthetic.

Source: fundinguniverse

Chipotle has a cult following

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.

Commodity costs haven't been a problem before...

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.

Chipotle's stock surge is staggering

Chipotle is up over 150% in the last year.

According to Robert W. Baird analyst David Tarantino, Starbucks, Lowe's and Coach had price to earnings ratios averaging 1.7 which is what investors are buying Chipotle at.

It also had one of the most successful IPOs when it rose 100% on its opening day.

And it is expanding into new markets

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.

The formula is simple

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.

There will soon be a Chipotle in Paris

Chipotle is still expanding with a plan to open 135-145 new units next year in the U.S., Europe, and Canada.

It will open a location in Paris by the end of the year.

Now check out a company that is even more massive than Chipotle

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at