The ridiculous reason McDonald's sold Chipotle and missed out on billions of dollars

McDonald'sREUTERS/Lucy NicholsonThe signage outside a historic McDonald’s restaurant is seen in Downey, California February 18, 2015.

McDonald’s was a major contributor to Chipotle’s success.

The burger chain made an investment in Chipotle in 1998 that helped it grow from 14 locations to nearly 500 within seven years. By 2005, McDonald’s had a 90% stake in Chipotle’s business.

But one year later, McDonald’s divested its stake and parted ways with the fledgling burrito chain.

Now Chipotle has more 1,800 locations and business is booming, while McDonald’s is battling declining sales and traffic, a damaged public perception, and a relationship with franchisees that has hit an all-time low.

At McDonald’s annual shareholders meeting this week, an attendee grilled the CEO on why the company gave up on Chipotle, according to Entrepreneur.

The chief executive, Steve Easterbrook, said Chipotle was a distraction.

“At the time Chipotle and other concepts, such as Boston Market, had taken attention away from the core brand,” Entrepreneur’s Kate Taylor writes, paraphrasing Easterbrook’s response. “Company executives wanted everyone to put 100 per cent of their efforts into the McDonald’s brand, so they sold the company’s shares.”

Clearly, that wasn’t the best strategy.

Chipotle’s same-store sales grew more than 16% in 2014, while McDonald’s declined 1% during the same period.

Chipotle founder and co-CEO Steve Ells has spoken openly about the companies’ differences in the past.

“What we found at the end of the day was that culturally we’re very different,” Ells toldBloombergof his company’s relationship with McDonald’s. “There are two big things that we do differently. One is the way we approach food, and the other is the way we approach our people culture. It’s the combination of those things that I think make us successful.”

For example, McDonald’s wanted Chipotle to add drive-thrus to its restaurants and change its name to Chipotle Fresh Mexican Grill, according to the report.

The company also forced Chipotle to franchise some of its restaurants, which it did reluctantly.

“Bless their hearts, McDonald’s had a lot of great suggestions, and we were always polite about it,” Chipotle chief operations officer Gretchen Selfridge told Bloomberg. “They really wanted us to do drive-thrus. They really wanted us to do breakfast. But we just really didn’t do any of that.”

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