By restaurant industry standards, Chipotle Mexican Grill does countless things wrong. Its outlets aren’t in the busiest locations. It spends too much money on food. It doesn’t serve breakfast; it doesn’t do drive-throughs, franchises, or even much in the way of advertising. It almost never adds anything new to its menu. Employees still cut all the tomatoes — hundreds of thousands of pounds a day — by hand. It is, in so many ways, the anti-McDonald’s.
Which is strange, particularly when you consider that Chipotle spent roughly eight years under McDonald’s corporate arches. McDonald’s early investment in the burrito chain gave it capital to grow, an inside look at ultra-efficient supply-chain economics, the know-how it needed to manage its expansion from 13 stores in 1998 to almost 500 in 2006. For its investment — roughly $340 million by the time of Chipotle’s initial public offering — McDonald’s got a nice little return. It turned out to be the short end of the stick.
In the years since their split, Chipotle’s rapid growth and consistently astonishing financial results have made it a darling of investors. Its commitment to fresh, high-quality ingredients at only slightly higher prices has helped to define a new wave of “fast casual” dining. And McDonald’s … well, everyone knows what’s happened to McDonald’s. As consumers’ tastes changed, the chain became the poster-child for America’s obesity epidemic. Sales slumped, and, recently, the stock price followed. Last week, McDonald’s announced that Chief Executive Don Thompson would step down on March 1 and be replaced by Chief Brand Officer Steve Easterbrook. The incoming CEO has one job: to get the iconic chain back on some kind of track at a time when Chipotle and its disciples are ascendant.
The story of Chipotle’s meteoric rise is also the story of McDonald’s failure to adapt to the changing American appetite. To understand both, we interviewed dozens of people involved with Chipotle, from its inception in founder and CEO Steve Ells’s Colorado dining room through its time at McDonald’s to today. McDonald’s declined to make current leaders available for this story, but we were able to talk to many of the company’s former executives, including several who now work for Chipotle.
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In Ells’s telling, the company has thrived on high-quality food and engaged workers — and because Ells created a highly efficient way to cook, one that had nothing to do with the established, freeze-heat-and-serve fast-food model. The funny thing is, Ells never really wanted to spend much time in the burrito business at all.
Pre-Chipotle
Born in 1965, Steve Ells learned to cook early. During high school and college, he often hosted friends for elaborate meals and fine wine — but never Mexican food.
BOB ELLS: My wife is a very good cook, and partly to keep Steve out of trouble and partly to teach him a little bit about cooking, she had him sitting on the counter and stirring, and running the mixer.
MARK CRUMPACKER: Steve was a bit of a delinquent actually in high school. You know, much less so in college.
MONTY MORAN: He was a fantastic chef in college, and he would have these dinner parties and cook amazing meals. The first time I walked in his house, he was dropping an anchovy into a blender where he was emulsifying a Caesar dressing.
BOB ELLS: So fast-forward to the middle semester of his senior year at college. We were having dinner one night in Boulder, and I said, “Steve, what are you going to do when you graduate?”
STEVE ELLS: I wasn’t sure what I was going to do, and my friend Cyndi said, “You should go to cooking school.” I wasn’t thinking about a career, but I thought, “That’d be fun!”
BOB ELLS: I said, “I’ll make a deal with you. If you work a year doing anything related to restaurant work — waiting tables is good enough — and then tell me you really love the restaurant business, I’ll pay to send you to a culinary college. But I have a condition: it has to be the best culinary college in America.”
Early Days (1991 – 1996)
Steve graduated from the Culinary Institute of America in 1990 and moved to San Francisco, where he worked as a sous-chef at Stars. Owned by former Chez Panisse chef Jeremiah Tower, the legendary restaurant emphasized fresh ingredients and fetishized its shining, open kitchen. While in San Francisco, Ells also fell in love with the city’s massive, foil-wrapped, Mission-style burritos.
CRUMPACKER: He saw the potential in these taquerias in San Francisco to turn those into something highly efficient.
STEVE ELLS: It was just a great way to assemble your food and create your food to your own taste. I liked the packaging, too. In Boulder, burritos were on a plate and smothered with green chili.
BOB ELLS: I said, “So you have six years of pretty expensive schooling here, and it’s going to be burritos and tacos? Are you serious?”
MORAN: At Steve’s dinner parties, there was always a lot of braising meats, duck confit, roasts. So one time I said, “What are we having?” and he said, “Burritos.” I remember being extraordinarily disappointed, because how good can a burrito be? My dad and I went to his house with a number of other people, and that’s where I ate the first Chipotle burrito. It was absolutely delicious.
STEVE ELLS: We were at my parents’ house writing out all these different names. And it was just like a light bulb went off: “I should call it Chipotle.” Everybody told me that was the wrong name: “How do you pronounce it?” Or, they said, “No one knows what it is.”
BOB ELLS: Steve said he needed $75,000. So I said, “OK, you’ve got to write a business plan.” It was one page and it said, “Worst-case, best-case and mid-case.” He put down “number of burritos sold per day,” and then he went through the cost of the burrito and the cost of electricity, utilities, rent, and repaying my loan. The break-even was he had to sell 114 burritos a day.
“I deliberately made it simple to operate, because I didn’t want to spend much time there.”
STEVE ELLS: The site that I could afford was 1644 East Evans Avenue. I think I was paying like $850 a month. It was nothing.
JOE STUPP: There was a hair salon next door. Whenever they were shampooing somebody’s hair, you couldn’t serve Coca-Cola because the water wouldn’t come through. Everyone in the whole block shared the plumbing.
BOB ELLS: We were very concerned. We figured there was a possibility that he would probably have to come home and live with us, and we’d have to continue to subsidize his income.
CRUMPACKER: When Steve said that he was going to start this burrito restaurant, he asked for an identity. That logo was not particularly great. It was green and red originally, which felt very Italian.
STEVE ELLS: The day before we opened, I got a food order and prepped: soaked the beans, made a puree out of the chipotle, marinated meats, started the braises. And the next day, it was me and two prep cooks. One of the prep cooks’ wife helped serve. That was Day One. I don’t know what I was expecting, but we did a few hundred dollars in sales. The second day, it doubled.
GRETCHEN SELFRIDGE: There were no menus. People would come in, look around, and walk out the door like, “Ah, it doesn’t have anything I want. I really don’t know what it is.” And Steve would chase them down and say, “No, no, no, I’ll buy you a burrito. Just try it.”
STEVE ELLS: I’m like, “Better than a menu board, look at the food. Look at all this stuff you could eat!” … Since day one and today, the biggest challenge is people. And it always will be.
STUPP: Steve had hired a guy who apparently wasn’t very reliable as a manager, and we think that he stole the safe. He disappeared and the safe was gone, so that was kind of a good indicator.
CHRIS ARNOLD: When he had just that first restaurant opened and it was going well, he was reviewed by the Rocky Mountain News by a guy named Bill St. John. He got a really great review, and the volume of business went up pretty sharply at that point.
MORAN: He had a business plan showing that he had planned on a profit of $24,000 his first year. He exceeded it so vastly that no one ever looked at that business plan again. Very quickly, he became a bully at the poker table.
STEVE ELLS: It was making much more money than I had ever anticipated. In my heart I was ready to start thinking about a fine-dining restaurant. A few people said, “Steve, you should open another one of these.” So I called my dad, and he’s like, “Really? Do you think Denver could have two of them?”
So Many Burritos
SELFRIDGE: People started wanting [the burrito] without the tortilla, so we would line the red baskets with foil and then use that as the bowl. We would say, “If you’re going to take it home, could you do us a favor and just bring it back after you get a collection of them?”
STUPP: Store Two had been a House of Pies. They had a linear line, probably where they could display their pies more easily. It made a perfect serving line for us — completely different from the Evans location. We had serving lines at all of our restaurants from then on.
PAUL BARRON: I remember they had this really horrendous green sign. It was just hideous. Everything looked homemade.
STEVE ELLS: I deliberately made it simple to operate, because I didn’t want to spend much time there. I wanted to be focused on a fine-dining restaurant.
JOHN IMBERGAMO: I remember a conversation with Steve Ells in the very early days. That was when everybody and his brother was opening a place that served these kind of wrapped things, and I said, “You know, you’re going to have to do, like, Peking duck wraps and hoisin shrimp wraps and stuff like that, because people are going to get bored with just three things.” And he said, “No, I think we’ll just stick with what we’ve got.”
SELFRIDGE: When I first started there, I think they were doing about $3,000 to $4,000 a day. Then we started really getting a system in place, and we did $6,000 or $7,000 a day. Now we’ve got stores that are doing, $10,000, $12,000, $13,000 a day.
BOB ELLS: Steve always wanted a BMW. So he went out and bought himself a 3-Series BMW, and that might be considered his first real indulgence.
SELFRIDGE: We finally just said, “If we’re going to open a lot of these, we probably need to write recipes down.” Steve said, “No, you don’t ever go by a recipe. You taste things and that’s how you create things.” So we made him cook the food. He was making the rice and he would take a thing of kosher salt and just toss it in. I was like, “Wait, wait, wait,” and I would catch the salt in my hands, put it into a measuring cup and say, “OK, that’s how much salt goes in it.”
STEVE ELLS: They were doing so well and customers were raving about them. It just seemed like the right thing to do, to keep opening them. …Every time I opened up another Chipotle, I felt a little bit guilty that I wasn’t doing fine dining.
Investors Wanted (1996-1998)
Steve’s parents provided funding for the first Chipotles, but it soon became clear that the business was going to need significant capital in order to grow. In 1996, Bob and Barbara raised $1.3 million from a handful of wealthy friends, Chipotle’s only private offering. Steve’s board, almost entirely family friends, began hunting for investors with deeper pockets.
STEVE ELLS: People were asking me all kinds of questions about the business and I was initially put off. I was like, “Just invest if you want to invest. Don’t bother me.”
BOB ELLS: By this time, we were truly trying to get a major company interested in supporting us financially, because I was beginning to run out of money. So I prepared a business plan with the help of another board member.
AL BALDOCCHI: I think I was the only one who was not a family friend on that board. Steve said he had a business plan and asked if I would take a look at it for him. That’s code for, “I need to raise some money.” What I saw that really surprised me was the unit economics. They were comparable to what some other public companies were producing, and that was [data from] their worst store.
STEVE ELLS: The economic model was formed by the constraints that I had: a small space, relatively inexpensive building materials, relatively inexpensive investment, a very efficient service line or assembly line.
BOB ELLS: We sent the business plan to 13 venture capital or investment banker-type companies that specialize in the restaurant business. We got rejected by all 13.
JIM ADAMS: They wanted to know if I could help them get a story in Nation’s Restaurant News. As a PR professional, that was pretty low-hanging fruit, and I said, “Well, sure.” They were very, very excited. I think what they were looking at was: “This is the story we could take to potential investors.”
BOB ELLS: Al [Baldocchi] said, “ A good friend of mine has been hired by McDonald’s to do new business development … I’m going to call him while I’m in Chicago.” … We were drop-dead excited. This was an incredible coup.
BOB ELLS: They asked Steve to come to the board meeting at McDonald’s in Illinois and prepare a typical serving of a Chipotle burritos and tacos. And so he prepared this meal. The board just savored it.
SELFRIDGE: I was working in store No. 2, and this big limo pulled up, and all these suits got out. They all kind of looked the same, big guys in suits. And they all had these rings — “M” rings on or little diamond rings. I was like, “Is this a cult? What’s going on?” They went through the line and ordered one of everything, and they went back in the car and were eating in the car. Then I think one of us called Steve and said, “Should we be concerned?”
PAT FLYNN: There were a few directors that were concerned, so I made the effort to visit with them personally and take them through the process of what I was doing and what I saw.
BOB ELLS: They put on a couple of tough negotiators. We focused on the value in the future and said, “Look, this thing can grow to X amount by this time, and look at the income and so forth.” And they said, “No, we don’t do it that way. We look at what past practice has proven will work. Don’t give us hockey-stick projections of the future.”
FLYNN: Ultimately there was a board meeting at McDonald’s where they agreed to do it.
BOB ELLS: On-site in Oak Brook they have a hotel, and they have a five-star restaurant there. And they had prepared a dinner for my wife and I and three or four others from the board level and Steve. We had a giant celebration there.
BALDOCCHI: Raising money is rarely a CEO’s favorite activity, and Steve was just so glad it was over.
JIM ADAMS: I was at a dinner party at Steve Ells’s house, and he spilled the beans that McDonald’s was going to make an investment. We were bummed. I was disappointed to hear it, because you immediately thought, “Oh, man, McDonald’s is going to come in and take this over. They’re going to put their people in place. They’re going to possibly wreck something that was special.”
The McDonald’s Era (1998-2005)
McDonald’s committed about $50 million in the first year to Chipotle. It was a relatively small amount for the burger giant, which had made a $1.6 billion profit in 1998, but significant for the burrito chain, which by then had 13 stores. For its investment, McDonald’s got to show Wall Street that it was diversifying and growing. Chipotle got cash, access to a massive supply chain, institutional know-how, and plenty of well-intentioned advice.
RICHARD ADAMS: McDonald’s went through a crazy period in the late 1990s where they tried to build too many restaurants, trying to convince Wall Street they were still a growth company. That flopped completely. The stores were taking sales away from the existing restaurants. So then the strategy turned to buying up all these various other brands.
MIKE DONAHUE: Jack knew he had to do something creative to grow our sales because things had slowed down. We bought Boston Market, Donatos, Chipotle, Pret A Manger. Greenberg also took 40 execs from around the world and put us in an incubator in a different building in downtown Chicago and said what could we do with our core competencies to build the next McDonald’s? Lining up a maid service, dry-cleaning, mowing the lawn, we explored all these different businesses. We looked at senior citizen places. It was a thrilling project.
FLYNN: [Chipotle] was really like our first venture into this type of thing, and we weren’t approaching it to be a venture capitalist by any stretch of the imagination.
DONAHUE: Those of us that went out and saw their headquarters were blown away. People brought their dogs into their office. Ells walked around in blue jeans. At that time, McDonald’s was still very corporate.
“There was one common product that could either be delivered to a Chipotle or a McDonald’s restaurant: a five-gallon bag of Coca-Cola.”
STEVE ELLS: If I had taken money from, say, venture capital, they would have wanted a certain return in a certain time period. McDonald’s, on the other hand, seemed very interested in my passion about creating this brand. I trusted them, and they did not really interfere with the brand.
ARNOLD: I would think of it in terms of McDonald’s being the rich uncle and Chipotle as the petulant nephew where we take the money and are grateful but are stubborn and strong-willed enough that we’re going to do what we want with it anyway.
MATT PAULL: At a time when I was cutting back capital for McDonald’s, Chipotle got whatever it requested. The [performance] numbers didn’t lie.
FLYNN: The philosophy we had was that Chipotle could pull resources from McDonald’s, but we never let McDonald’s push resources onto Chipotle.
BALDOCCHI: There was always one person from McDonald’s who was on the board who was kind of the primary contact. For a while that was Pat Flynn.
SELFRIDGE: I made Pat Flynn put on an apron. I said, “Why don’t you come in the kitchen and cook with me?” I had him take the chicken off the grill, and then I said, “Now we scrub the grill.” It’s very intensive work. You’ve got to be strong. He was sweating a little bit, and he was like, “There’s got to be a better system. You can’t do this by hand all the time. Maybe Black & Decker or somebody could make this thing that comes out of the ceiling and does it all for you?” And I’m like, “OK, but we’ve been doing it this way for quite some time.”
STUPP: They helped us learn how to keep track of our foods and our systems a little better. And I think they helped us understand what it’s like to run a larger chain, which was something that we couldn’t really figure out before then.
JOHN CHARLESWORTH: The benefits that being connected with McDonald’s offered: capital, distribution systems, real-estate expertise, construction knowledge, some talent, organizational structures, things like that.
STUPP: Occasionally customers would come in and go, “Gross. You’re with McDonald’s now?” And then we’d have to go into an explanation. But it didn’t really change anything from our point of view, as far as our jobs.
SCOTT THOMAS: We, as distributors in the McDonald’s system, were basically directed to help them get started from a distribution standpoint. All the key learnings growing up in the McDonald’s system, they wanted Chipotle to take advantage of.
JEFF STEINER: The cilantro and red onions and avocados and so forth were new products to us. Although McDonald’s does have fresh produce items, you could tell we had a new customer in because the Portland distribution center smelled like a produce house. McDonald’s product is fresh, but it’s sealed in bags for shelf-life purposes. The Chipotle product is primarily fresh product in a box.
STEINER: There are approximately 650 line items in a McDonald’s distribution center. When we brought Chipotle into the Portland DC in 2004, there was one common product that could either be delivered to a Chipotle or a McDonald’s restaurant: a five-gallon bag of Coca-Cola — the syrup. That’s it.
SELFRIDGE: Bless their hearts, McDonald’s had a lot of great suggestions, and we were always polite about it. They really wanted us to do drive-throughs. They really wanted us to do breakfast. But we just really didn’t do any of that.
MORAN: One of the McDonald’s guys thought we should call it “Chipotle Fresh Mexican Grill,” because the term “fresh” was such a great term, and Baja Fresh had “fresh” in its name. And I remember Steve had a very non-tactful, politically incorrect response: “Well, that’s a bunch of you-know-what. Why would we do that? It doesn’t make any sense.”
PAULL: He wasn’t the most popular person in McDonald’s headquarters because he was polarizing. He rejected everything that we held dear – the drive-throughs, the advertising, the prominent store placement.
SELFRIDGE: I was explaining we’re going to go to Kansas City. And they said, “Oh, well, if you go to Kansas City, you’re going to have to change your menu. You’ll probably have to put barbecue on there, and if you go to New Mexico, you’ll probably have to put green chilies in it.”
“We got a little heat from that, and finally, McDonald’s asked us in a very polite way, ‘Pull that one back.’ And we did.”
JIM ADAMS: There was one time we had an ad — a picture of the iconic foil-wrapped burrito — and it said, “Usually when you roll something this good it’s illegal.” We got a little heat from that, and finally, McDonald’s asked us in a very polite way, “Pull that one back.” And we did.
STEVE ELLS: [McDonald’s] had requests that we offer Chipotle to their franchisees, and we dabbled in that. It didn’t really work.
RICHARD ADAMS: McDonald’s is unique in that they don’t let their franchisees own other brands. They can’t go out and buy an oil-change shop. For McDonald’s to bend those rules and to let the guys own a Chipotle was very interesting, and a real change in the McDonald’s culture.
MORAN: We did franchise eight restaurants at the request of McDonald’s, and it was an uncomfortable time for us. We didn’t want to. We agreed to do it to keep them quiet, because there was so much excitement at McDonald’s about Chipotle. … Ultimately we had to buy out those franchisees for a pretty massive amount of money.
STEVE ELLS: What we found at the end of the day was that culturally we’re very different. 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.
JACK HARTUNG: Every time McDonald’s put capital in, new stock was issued. Every single year to raise this capital, the company had to be valued. There was this built-in conflict. Steve and the minority investors were very bullish about the future and felt that the valuation should be very high. McDonald’s felt like Chipotle was unproven, and so it’s not worth that much. These partners — McDonald’s and Steve — were against each other for two months of the year. So we brought in investment bankers and we had them do the valuation every single year. Success was pretty apparent because both sides were a little bit unhappy.
CHARLESWORTH: We were moving along fairly well at that point and Wendy’s bought Baja Fresh, so we were talking about it competitively … Steve made the comment, “Fresh is not enough.” And it sort of took me aback. Everybody was talking about “fresh” back then, but Steve said “I want to change the way the world eats.”
STEVE ELLS: Up until that point it was about buying really good, fresh food. But I had never visited the farms.
BOB ELLS: They [McDonald’s] invited Steve to go to their chicken farm in Arkansas. He came back and said it was absolutely the most disgusting thing he’d ever seen in his life.
STUPP: Our first recipe for carnitas was kind of like dried erasers. If you were lucky to go in there within the first 15 minutes of them being put on the serving line, they were good. But if you missed that opportunity, forget it. It wasn’t until some years later, when we changed the recipe at the same time that we got involved with Niman Ranch, that we actually started cooking them better.
STEVE ELLS: I was always tinkering with recipes anyway but specifically the carnitas recipe, so it just sort of made sense. … I called [Niman] and got some samples sent and liked the results and then went up and visited, saw it for myself.
BOB ELLS: The improvement in the carnitas was dramatic once he switched to these small pig farms.
JIM ADAMS: I’m a PR guy; we’re always looking for an angle. That was a great angle.
SELFRIDGE: Our food cost is what runs in a very upscale restaurant, which was really hard for McDonald’s. They’d say, “Gosh guys, why are you running 30 percent to 32 percent food costs? That’s ridiculous; that’s like a steakhouse.”
BALDOCCHI: I don’t know that Steve had picked out the phrase “food with integrity” yet, but he was starting to focus a lot on ingredients. I saw a potential for some conflict between the two companies.
The IPO (2006)
Under McDonald’s, Chipotle grew from 13 restaurants to about 500, but its contribution to McDonald’s bottom-line was still small. Investors were asking for co-branded McDonald’s-Chipotle restaurants, and franchisees were getting distracted. The Chipotle crew were also increasingly unhappy with — and vocal about — McDonald’s supply chain. McDonald’s new CEO, Jim Cantalupo, had already begun the process of selling off the partner brands, and the stock was rising again. It was time for a McSplit.
PAULL: It should never have become a Mexican version of McDonald’s, and the longer we owned it, the higher the risk that sort of thing would happen.
ANDY BARISH: At the time, [Chipotle] did create some value, but for a company the size of McDonald’s it wasn’t huge. … I don’t know that anyone thought this would be a $20 billion company.
PAULL: It’s technically called a split-off. You say ‘OK, you can hold on to your McDonald’s shares or you can trade them in for Chipotle shares.’ There was no bigger go-go growth company at the time.
HARTUNG: I remember feeling a little bit insecure. We hadn’t spent time with anybody on Wall Street. There was one meeting with a very large investor who came in and said, “This is like Taco Bell, right?” We had to do some explaining.
STEVE ELLS: On the roadshow, people said, “Who are your customers?” I just said, “People who are hungry, you know, people who like to eat.”
MORAN: We priced at $22 a share, and then the damn stock couldn’t open for like 90 minutes.
MORAN:It wouldn’t open until it was at $44 a share. It literally doubled on its first trade, which represented a huge loss of money to Chipotle. But obviously, it represented a pretty exciting time for us to see how loved our company was and how much demand there was for our stock.
ARNOLD: We reconvened for a big dinner with the bankers and all of our folks, but in between Steve and his dad just disappeared. They went to a museum, looked at art.
BALDOCCHI: The IPO was somewhat freeing. It’s like an 18-year-old going away to college. They’re going to do what they’re going to do at 17 but, boy, once you get out of the house it sure does feel good.
STEVE ELLS: As it turned out, we were a better company after, you know, the independence. Our own real estate, our own purchasing, our own distribution turned out to be better than what they had. Going public people said, “Oh, my gosh, if you’re going to separate from McDonald’s aren’t you going to miss all this great stuff?” And we were thinking, “No.”
Burrito Boom, Burger Bust (2006 — present)
Independent again, Chipotle made “food with integrity” a central part of its otherwise-limited marketing. Chipotle opened another 1,000 stores in the U.S. and expanded abroad; it also launched two new Chipotle-style chains: ShopHouse, and Pizzeria Locale. Meanwhile, McDonald’s sales continued to slump. In 2014, the chain announced its own “Our Food, Your Questions” campaign designed to emphasize its food quality, and CEO Don Thompson insisted that the chain can reinvent itself. In January 2015, the company moved to replace him.
BARRON: It’s kind of funny when you look at the position that McDonald’s is in today vs. what Chipotle is in, with so much upside and McDonald’s struggling both from a stock price and consumer sentiment perspective. I still think that had McDonald’s maybe just altered its course a slight hair in terms of offering and service model, that it could have potentially decimated the fast-casual industry before it ever got started.
PAULL: I can’t think of a single thing that transferred from Chipotle to McDonald’s. They both serve Coca-Cola I guess.
RICHARD ADAMS: I wish McDonald’s had hung on to Chipotle, because Chipotle has maintained their simple and efficient operation and McDonald’s has gone on to let their menu become huge and bloated — the restaurants are very inefficient. Maybe they could have learned something from Chipotle, or maybe they could have screwed it up.
DAVID CORSUN: In 1993, you didn’t participate in your own food service in the $7 or $8 price range. You wanted to either be served or have it be dirt-cheap. …And the more you increase customer participation in a service setting, generally the less control you have over it. What Steve Ells did was show that’s not necessarily so.
IMBERGAMO: You’ve got this incredible customization element to it. You walk through the line, if you just want a little bit more salsa or a little bit less rice or two different kinds of salsa, nobody ever says no to you through that process. They might charge you for it, you know, but that customization doesn’t slow the throughput, the movement of people through the line.
“I would think of it in terms of McDonald’s being the rich uncle and Chipotle as the petulant nephew.”
STEVE ELLS: This model is cuisine agnostic. Any kind of food can be applied. And I think it’s the new fast food model.
BOBBY STUCKEY: How can you get your tentacles out there and change the fast-food industry? If you really want to do that, you might need more tentacles than just burritos.
TIM WILDIN: Hearing Steve say that many cuisines could work in the Chipotle format, I basically pitched him this idea. I kind of demanded it. I said, “Steve, we have to do a Southeast Asian restaurant.” He miraculously said, “OK, let’s do this.” So I set up a trip for us and we went to Bangkok and Singapore, and we spent a little over a week just eating like crazy.
NICK SETYAN: Chipotle is trying to clone itself. That’s very different from what McDonald’s was trying to do, which was diversify away from itself.
WILDIN: ShopHouse paved the way and sort of taught Chipotle how to do another brand. So we worked closely at the beginning of launching their first Pizzeria Locale restaurant.
LACHLAN MACKINNON-PATTERSON: When we started to realize what a joint venture might look like, we also realized that to really capitalize on what they could offer Pizzeria Locale, we would have to play in their arena, with a more fast-casual version. We made a decision. We said to them, “Do you think we could make this an interactive service format much like Chipotle?”
IMBERGAMO: Everybody is dying to be the Chipotle of fill-in-the-blank. Everybody wants to be the Chipotle of pizza. Everybody wants to be the Chipotle of Indian food. Everybody wants to be the Chipotle of Middle Eastern food. Everybody wants to be the Chipotle of God-knows-what.
MACKINNON-PATTERSON: Are we the Chipotle of pizza? Yeah, we likely are.
IMBERGAMO: So many other chains, including McDonald’s today, would die for the ability for people to customize their meal without slowing the line down. It’s built into that concept, and it’s a great consumer benefit, and it works operationally.
MACKINNON-PATTERSON: After we do a lunch of 180 people, the staff is like picking themselves up off the floor. It’s just carnage. And to be able to be in a Chipotle where they’re doing 300 transactions in an hour, and making it look simple — we just had no concept of that. I’m still kind of enamored by the crew and what happens on some of these busy lunches in some of these restaurants where it’s just so incredible, what’s possible.
SETYAN: If any one of these concepts actually becomes anywhere close to a Chipotle, it’ll be another home run. So it’s a low-cost, low-risk investment on their part.
CRUMPACKER: Most big fast-food companies aren’t food companies, they’re marketing companies. If your economic model is dependent upon sourcing the very, very cheapest ingredients and creating food that can be prepared outside of the restaurant and rethermalized, as the industry calls it, you can’t undo it. Even if [McDonald’s] wanted to change the quality substantially, it would be a very hard thing to do within the economic environment of McDonald’s. … What will happen is that these new ones will start out with the right economics, the right ingredients, and then slowly displace the other guys over time.
HARTUNG: It’s kind of crazy that this year as now a 21-year-old company with nearly 1,800 restaurants and average volumes of $2.4 million, we just now delivered our highest comp as a public company.
MORAN: Well, [the results have] been so good so many times in a row for so long that it sometimes does seem a little exhausting, like, “Man, how can we keep pulling rabbits out of hats?”
STEVE ELLS: You know, I remember looking to McDonald’s and, my God, they have 13,000 restaurants in the United States. Well, we have almost a couple thousand Chipotles. What if Pizzeria Locale is a few thousand and Shod. All of a sudden we’re bigger than McDonald’s in the U.S. I mean, that’s not an unreasonable way to think about this.
Date: February 2, 2015