Chipotle Nation
The genius of Steve Ells and Chipotle is contained within a simple mission of “Food with Integrity” and experienced every day by 750,000 hungry diners. The restaurant’s meteoric rise begs the question- what really lies underneath that golden foil?
An unanticipated success
When Steve Ells opened the very first Chipotle in Denver in 1993, he only planned to stay in the burrito business long enough to accumulate sufficient capital to launch his first fine dining restaurant. [1] Little did he know that by 2015, Chipotle would grow to 1,900+ stores with annual revenues of over $4.1B [2], revolutionizing the US restaurant industry in the process.
Having your guac and eating it too: winning with the fast casual business model
As a pioneer and emblem of the ‘fast casual’ dining segment, Chipotle has designed and executed a business model that provides customers with the best of two worlds: the speed and convenience of fast food alongside the elevated food quality found in sit-down casual restaurants.
Initially opened to compete with other fast food chains, Chipotle has always taken speed as a given in terms of customer value. Where it has deviated and excelled in comparison to its fast-food peers is through a philosophy of quality which is encapsulated in Chipotle’s current motto, “Food with Integrity.”
Specifically, Chipotle’s offerings center around fresh preparation and quality of ingredients. Most ingredients are prepared fresh daily in-store: lettuce, onions and cilantro are chopped by hand, chicken is grilled in-house and tortilla chips, rice, and guacamole are all also made fresh each day. [3]
Raw ingredients are held to a standard well beyond those of competitors; Chipotle has committed to GMO-free produce as well as meat/dairy from animals raised without antibiotics and artificial hormones. (In 2015, Chipotle stuck to its promise and eliminated a previous pork supplier who failed to meet standards despite a resulting nine month absence of carnitas) [4]
Under its fast “Food with Integrity” business model, Chipotle has experienced continuous growth while fast food giants increasingly struggle. Notably, the Chipotle business model has won over health and quality conscious consumers (particularly Millennials) who are willing to pay a significantly higher average ticket price ($11 versus $4 for McDonald’s) than for traditional fast food. [5]
A recipe for success: providing value through operations
How does Chipotle do both fast and high quality? The answer is a unique operating model that flies in the face of conventional fast food wisdom, both in terms of in-store and company-wide operations.
In-store
Menu:
Whereas most fast food restaurants have extensive menus and rely on new menu introductions to drive sales, Chipotle’s very limited menu offers a choice of four items, all of which use virtually all the same ingredients. This significantly simplifies food production, both in preparation and assembly, reducing cycle and wait times. Additionally, consistent/limited ingredients cut down on food waste and allow greater focus on quality ingredient sourcing (more about that later!).
Assembly line:
A central aspect of Chipotle’s operations is the assembly line, where a meal is ordered and assembled in front of and with input by the customer. Ingredients are all collected in one area and laid out in order to allow rapid assembly, with servers quickly developing skills through repetition. Visibility during assembly allows the customer to directly specify requests and reduce mistakes/re-work to keep the line moving. To further speed up the assembly line during peak hours, employees are cross-trained to handle any part of the assembly process, as well as various preparation tasks in the kitchen, and top servers are assigned to assembly duty during meal rushes. Finally, specific support roles are in place to maximize line speed including “expediters” that get drinks/bags orders and “linebackers” that refill food bins and clean counter tops to keep servers focused on assembly.[6] The result: you get your meal in minutes.
The assembly line also creates an interactive and customized food experience, turning a relatively small set of ingredients into an estimated 65,000 possible unique meal combinations. [7] Visibility into and control over meal preparation supports Chipotle’s higher quality customer experience beyond just speed. The food line is so much a part of the Chipotle’s value proposition that the company was recently sued by a wheelchair disabled man who claimed that not being able to see above the counter “denied [him] the Chipotle experience.” [8]
Key to the success of in-store operations are Chipotle’s front-line employees. Here, Chipotle’s business model strongly supports the hiring, motivation and retention of a quality workforce (with a target being high school and college students). Specifically, premium pricing allows Chipotle to offer a full set of benefits even to hourly employees, including paid time off and tuition reimbursement. Furthermore, a culture around “Food with Integrity” also translates to a workplace environment that respects employees and clearly lays out the path towards internal advancement.
Company-wide
Supply chain:
Chipotle’s supply chain also supports and is supported by its business model. In similar fashion to its generous labor benefits, Chipotle is able to pay a premium to suppliers to ensure that raw ingredients meet high quality standards. In addition to higher prices, suppliers are supported by guaranteed demand as Chipotle continues to expand. As it further focuses on “Food with Integrity”, Chipotle has increased local sourcing (defined as ingredients sourced within 350 miles of the receiving store) which is expected to further elevate the company’s mission.
Store ownership:
Another unusual feature of Chipotle’s broader operating model compared to competitors is that every one of Chipotle’s stores is owned and not franchised. This enables the company to maintain much stricter controls over operations and corporate culture to ensure that “Food with Integrity” is equally realized across each and every store.
That’s a wrap
It’s clear that Ells has found a winning combination in Chipotle, with a business and operating model that reinforce and elevate one another. As it approaches its 13th year and 2000th store opening, Chipotle will continue to lead the fast casual movement to the delight of investors and lunch-goers alike.
[1] Fortune: “Chipotle- Rise of a fast food empire”. http://archive.fortune.com/2010/10/06/smallbusiness/chipotle_started.fortune/index.htm
[2] [4] [6] Chipotle Annual Report 2014. http://ir.chipotle.com/phoenix.zhtml?c=194775&p=irol-reportsAnnual
[3] Business Insider: “Here’s which Chipotle ingredients are prepared fresh in restaurants” http://www.businessinsider.com/chipotle-address-food-preparation-2015-2
[5] Forbes: “How the fast casual segment is gaining market share in the restaurant industry”. http://www.forbes.com/sites/greatspeculations/2014/06/23/how-the-fast-casual-segment-is-gaining-market-share-in-the-restaurant-industry/
[7] Business Insider: “Chipotle says you can order 65,000 menu combinations”. http://www.businessinsider.com/how-many-combinations-can-you-order-at-chipotle-2013-7
[8] Washington Times: “Chipotle in violation of disabilities act”. http://www.washingtontimes.com/news/2010/aug/1/chipotle-in-violation-of-disabilities-act/?page=all
I agree with many of the points above and thing of Chipotle as one of the pioneers and best in call. On the supply chain, how do you interpret the recent troubles with e-coli? Is this growing pains, or a fundamental problem with scaling their model?
Thanks for the post Ben!!! The ecoli troubles definitely highlight one risk of the supply chain and sourcing from local and diversified suppliers where it might be more difficult to do safety inspections and maintain standards. They are certainly having some trouble identifying the exact source of the outbreak right now.
Perhaps the silver lining is that we’ve seen that restaurants have recovered from such things in the past- if your’e interested in how and how long it took you can do a quick google search on ecoli in Jack in the Box.
I really enjoyed the article Michael! I agree with your analysis of Chipotle’s value proposition and I also love eating there when I need something quick 🙂
Coming from Israel where vegetables and fresh, unprocessed food is very common, I was surprised to find that a Tex-Mex restaurant was able to offer some of those qualities, and I think that it is mainly due to its unique operating model. As many people become more and more conscious to fresh, unprocessed, healthy food, I am hoping that more chains will follow Chipotle and will offer different types of food. A good example for that is “Aroma”, an Israeli chain offering a variety of fresh salads, sandwiches, pastries and drinks, now with few locations in the US as well – http://www.aroma.us/
Totally agree Yael- it’s really powerful how fast casual is able to appeal to such a broad swathe of the consumer base, from students to professionals to families. Also, Aroma sounds delicious.
Great post, Michael! Do you know why Steve Ells chose the burrito above the sandwich, hamburger, salad, or falafel wrap? You clearly lay out why TeX Mex is a good starting point for a fast casual restaurant – there are a finite number of ingredients that go into a burrito, beans and rice are cheap commodity foods, and the fresh items (guac, tortillas, lettuce) are easy to prepare each day. I wonder if there are any other cuisines that could achieve the same level of Chipotle’s success, or if Tex Mex is just particularly well suited.
Great question Kate! I’m not sure why Ells chose specifically burritos versus other cuisine initially, though he did allude to not wanting to compete directly with sandwich/burger places by establishing another concept around that. On your second question, Chipotle is actually in the midst of experimenting with a fast casual asian concept called ShopHouse Kitchen. Check it out here: http://www.shophousekitchen.com/
Really enjoyed reading this, Michael! I’ve been a big fan of the Chipotle’s food and management philosophy.
As Ben mentioned above, Chipotle has been suffering significant negative press from outbreaks of food poisoning in multiple locations across the U.S. Chipotle has really differentiated itself from its competition through its commitment to “Food with Integrity” and non-GMO food options. The recent outbreaks make me wonder what exactly Chipotle’s quality control standards are. Do you think Chipotle’s supply chain has overemphasized the origins of the food (non-GMO and local) and supplier relationships over their actual processes and operations?
I liked your emphasis on how the store environment and workplace culture set Chipotle apart from others in fast casual. I found the following article to be a really interesting perspective on Chipotle’s management style: http://qz.com/183224/how-chipotle-transformed-itself-by-upending-its-approach-to-management/. They have created a company with minimal employee turnover in an industry known for turnover by encouraging internal advancement and adding specific manager compensation incentives based on the number of direct reports who have been promoted. Do you think this unique approach to company culture is effective and sustainable? Or could this be an example of style over substance – similar to what critics say might be happening with Chipotle’s supply chain right now?