The effectiveness of the Chipotle Mexican Grill (CMG) business model doesn’t stem from their ability to make a burrito better than anyone else. Rather, it was founder Steve Els’ ability to take a simple and sparse operating model and thoughtfully and carefully use that same model in expanding CMG in to one of the largest fast-casual businesses in the world.
To assess the effectiveness of both the operating and business models, it is necessary to start inside the four walls. The store itself is very minimalistic with very little “wasted space.” With very few walls and physical barriers, the customer can see both behind the serving counter as well as into the kitchen. This visibility creates enhanced interaction between consumer and employee and comforts the consumer in that they can see the food preparation process. Finally, Chipotle wholly owns every store and as such, they can ensure that the layout and aesthetic is consistent in every store. A customer in California will have the same experience as a customer in Kansas City.
The Assembly Line
The true magic happens behind the counter. The assembly-line operating model is a key driver of their industry-best throughput times. Even in the densest urban areas, it is possible to make it from the door of the store to the cashier in under eight minutes. While each employee has a primary roll, they are all cross-trained so that they can help out at any part of the chain during particularly busy times. Finally, Chipotle has a few “expeditors” that don’t have one specific responsibility but rather help move the process along. (Telling the cashier what to ring up; retrieving the chips or beverage; communicating to the kitchen what ingredients are running low.) This work flow ensures little stoppage time as well as constant and consistent lines of communication.
The Ordering Process at Chipotle
Look no further than the menu to understand how they can keep the line moving with limited hiccups. By limiting the number of ingredients and options, they limit variability. From a customer standpoint, it prevents bottlenecks as there is only so much deliberating someone can do in line. While, yes, there are thousands of different combinations possible, the number of differentiated components are limited. This makes training new employees relatively simple. Additionally, by limiting the number of ingredients they reduce waste due to spoilage and in turn, they can focus on quality and freshness.
At the expense of potential profit, they have always limited their menu offering. While other fast-casual Mexican restaurants offer the likes of coffee and breakfast burritos in the morning and nachos and quesadillas at lunch, Chipotle stays true to their simplistic model. If you want nachos, visit a Qdoba. But if you wanted to get in and out of the store in under ten minutes, go to Chipotle.
The Org Chart
Chipotle ownership has implemented an organizational structure that incentivizes hard work and limits attrition. Additionally, the structure enables Chipotle to expand effectively and scale the model well beyond burritos. An entry level employee (“crew”) is tasked on the assembly line. From there, they can climb the ladder to kitchen manager, service manager, apprentice, general manager and finally restaurateur. This is crucial when Chipotle thinks about expansion and their broader business model. When Chipotle wants to open more stores, they can pluck general managers and restaurateurs from existing stores. This ensures consistency and quality.
Not only is an individual Chipotle store replicable, but also the business model is replicable. The process utilized in Chipotle is not specific to Mexican food. Recently Chipotle ownership introduced a fast-casual Asian concept (ShopHouse) and a fast-casual pizza concept (Pizzeria Locale).
Steve Els has taken a very slow and thoughtful approach to building the Chipotle business. They don’t open up new stores until existing stores are operating efficiently. They ensure that each new store is in a favorable location and can hire top-quality employees from existing stores. Their business model is focused on quality and integrity so they will not expand at the expense of degrading the brand equity. As such, they have amassed a loyal customer which in turn is less price sensitive than the typical fast casual diner. Fast casual business models often fail because they look to expand too quickly or they sacrifice food quality for the sake of increasing profit. Chipotle’s thoughtful approach to the operating model within each store enables them to build their enterprise for years to come and well beyond burritos and guacamole.
- Chipotle Corporate Site: http://careers.chipotle.com/career-path
- YouTube: https://www.youtube.com/watch?v=FvoLsIpq9Hc
- Myself: In prior job, Edgewood Management, I covered Chipotle from an investor standpoint for 2+ years. As such I spent a great deal of time with Chipotle senior management, industry experts & the investor community at large.